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Tom Galisano Archive

Saturday

23

May 2009

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Incentives (Still) Matter

Written by , Posted in Taxes

Tom Galisano, billionaire owner of the Sabres, is fed up and ready to leave New York.  He tells us why:

I love New York. But how much should it cost to call New York home? Decades of out of control budgets, spending increases and relentless borrowing have made New York simply too expensive.

Politicians like to talk about incentives: incentives for businesses to relocate, incentives to buy local and incentives to make smart decisions. After reviewing the 2009 budget I have identified the most compelling incentive of all: a major tax break immediately available to all New Yorkers. To be eligible, you need only do one thing: move out of New York State.

Modern economic thought provides with a very simple explanation: incentives matter. Russel Roberts on incentives:

…Incentives matter. The most famous example in economics is the idea of the demand curve—when something gets more expensive, people buy less of it. When it gets less expensive, people buy more of it.

Some find this bedrock principle of economics hard to accept, based on introspection. “When the price of gas goes up, I still buy gasoline,” says the skeptic. Or in its more extreme form: “You need gasoline, so people will keep buying it even when it gets more expensive.”

You may still buy gasoline when it gets more expensive. But you will try and find ways to buy less. Not necessarily zero, less.

For the wealthy, the price of living in New York has just gone up.  The predictable consequence is that there will be less wealthy people choosing to “purchase” the privilege to live there.