Studies: High tax rates don't drive people away; low rates don't attract | Arkansas Blog

Saturday, February 16, 2013

Studies: High tax rates don't drive people away; low rates don't attract

Posted By on Sat, Feb 16, 2013 at 1:14 PM

Quick: Somebody call out the Stepford Arkansas Republican Caucus to seize all copies of the New York Times and burn the, like a bunch of frat boys angry over a campus newspaper expose. Maybe the GOP could also, China style, block Internet access in Arkansas to the New York Times website.

The problem is that there are facts in today's Times that attack the Holy Writ of Arkansas Republican faith — low taxes are the panacea to all things. A high state tax rate drives rich people away. A low tax rate is the sure way to attract people, business and riches.

When you've made that leap of faith, facts really don't matter. But here are some from James Stewart all the same about the myth that when you raise taxes, millionaires flee:

That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.

... The notion of tax flight “is almost entirely bogus — it’s a myth,” said Jon Shure, director of state fiscal studies at the Center on Budget and Policy Priorities, a nonprofit research group in Washington. “The anecdotal coverage makes it seem like people are leaving in droves because of high taxes. They’re not. There are a lot of low-tax states, and you don’t see millionaires flocking there.”

Sure, some wealthy people move around, often to multiple homes and perhaps situate legally where there are advantageous rates.

But there aren’t many people like that. “Tax-induced flight is rare,” Professor Tannenwald said. “The rate of interstate migration is low to begin with. To the extent that people leave a state, or shun a potential destination, they do so primarily for other reasons, such as to find more affordable housing, better job prospects or a more attractive climate.”

The low-tax Stepfords like to mention Maryland, where high income tax returns declined after a "millionaire tax" was passed.

But a study by the Institute on Taxation and Economic Policy, a nonprofit research group in Washington, found that nearly all the decline in millionaires was the result of a drop in incomes largely attributable to the stock market plunge and recession, and not to migration — “down and not out,” as the study put it.

In 2009, just 364 people in the millionaire bracket moved from Maryland or died (the data didn’t distinguish between the two) — about the same percentage who disappeared in 2007, before any tax increase. And in 2009, more than 1,500 taxpayers entered the millionaire rolls, either because they earned more or moved to Maryland that year. That data “directly contravenes the notion that changes in tax policy were discouraging the affluent from working hard and earning substantial sums of money, or driving them out of the state altogether,” the study concluded.

A study in California, a high tax state found the same thing.

Professor Young said his study looked at every millionaire tax record filed in California over the last 20 years, and “neither tax increases nor tax cuts on the rich have affected their migration rates.” He said that the two major tax overhauls before the recent increase didn’t have any effect on migration rates of millionaires. “Among the very richest, people making more than $2 million, out-migration actually declined slightly after the 2005 millionaire tax,” he said.

And there's New Jersey, another high-tax state.

His research in New Jersey found that, while some people left, any lost revenue was more than made up for by added revenue from people who stayed. He estimated that New Jersey’s 2004 tax increase on incomes over $500,000 raised nearly $1 billion a year, “with little cost in terms of tax flight.”

Mr. Shure added, “I can say flatly that no state has ever raised taxes and lost money.”


Sure, you can always find an anecdote. Just as you can find plenty of anecdotal cases where the presence of guns has deterred crimes (inconveniently offset by higher crime and accidental shootings owing to the increasing presence of guns). The anecdotes won't die, nor will their promotion by those with self-interest.

“You can always find an anecdote.” Mr. Shure said. “Many people want this to be true as a way to discourage tax increases. The rich are always trying to find ways to make the middle class make their arguments for them.”

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