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Wednesday, June 20, 2012

Meredith Whitney: Lack of Local Investing Creating ‘Ghost Towns’

The trend toward lower and lower levels of total investment is causing a flight of capital from high-tax, business-unfriendly areas to low-tax, business-friendly locales, leaving ghost towns behind, according to leading bank analyst Meredith Whitney. MoneyNews reports:

Businesses in big-spending, tax-heavy states like California are investing elsewhere and are creating ghost towns back home in the process, says Meredith Whitney, founder of Meredith Whitney Advisory Group.

Business friendly states like Texas are seeing investments show up from other states, while in California, firms and even wealthier households can easily move.

The result, Whitney says, is that cities in California are quickly becoming ghost towns marked by falling housing prices and a fleeing tax base.

"You have more businesses investing outside of California — California home-based businesses investing outside of California in other states like Texas, Oklahoma, Indiana — more business development in those states," Whitney tells Bloomberg Television.

"Rich people, by the way, have the greatest mobility, so you leave effectively, these ghost towns, with high structural unemployment and a very low tax base," Whitney adds.

Local governments then raise taxes on the struggling citizens that remain to make up for the revenue shortfall, and the problem gets even worse.

"These towns keep having to raise taxes and you get the flight of the deep tax base anyway, Whitney says.

"What really matters is the real divide between the "haves" and "have nots" in this country."