Friday, October 5, 2012

Evidence: it's ok to tax millionaires

Richard Murphy points to this story that argues, contrary to conventional wisdom, millionaires do not necessarily flee high tax jurisdictions in search of tax havens:

From the article:

This newspaper's review of tax return data for 2010, the most recent year for which data is available, found no link between the state income tax rate and the number of people who reported adjusted gross income of at least $1 million.
  • The states with the most and fewest rich people per capita are Connecticut and West Virginia, respectively. In Connecticut, one of 190 taxpayers earns at least $1 million in adjusted gross income. In West Virginia, just one out of every 1,400 filers make that much. Yet both states tax rich people about the same.
  • Our neighbors: Nevada is income-tax free; Oregon has one of the nation's highest income taxes on the rich; and Arizona is about average. Yet all three have a below-average number of rich people per capita.
  • In the Midwest: Illinois and Ohio charge about the same income-tax rates and have similar populations. Yet Illinois has 233 millionaires per 100,000 taxpayers, while Ohio has 107 per 100,000 taxpayers.
  • In the Northeast: Massachusetts has more than double the millionaires per capita than neighboring New Hampshire, which is income-tax free.

Murphy concludes from this report that "It's fairly easy to move in the US. But people don't."  He therefore suggests we lay the mobility myth to rest since it would be comparatively much more difficult to move across national borders.  If people don't do it when it's easy, what will make them do it when it's hard?

I think and hope this is generally true--that people have cultural/social ties to places that prevent purely fiscal decision-making, so we don't need to coddle the rich out of fear of a Randian exodus, but can ask them to contribute more to the societies in which they live.  But the high profile cases we see in the news suggest that when it comes to the super-rich things might not be so clear.  Maybe they stay put but nothing stops them from engaging in the standard game playing that puts money out of sight to governments while doing so.  It could even be worse for society if they physically hang around but play all kinds of games rather than paying their taxes; in that case, it might be preferable if they pull a Saverin.

1 comment:

  1. The whole New Hampshire Massachusetts thing is somewhat complex. People do move to New Hampshire for tax reasons but to avoid MA tax they also have to work in NH. I think in generally the super rich tend to stay in MA or if they are looking to go someplace else for tax purposes they move to Florida not New Hampshire. There is a segment of the upper middle class though that has historically left MA for NH at least in part for tax reasons. One advantage NH has is their is some degree of civilization in the border communities which leads to my next point.

    I personally have little love for the PQ and BQ(for non Canadians the two Quebec seperatist parties) for reasons other than taxation that I just want to throw out there before my next comment. There have been several newspaper article out of Montreal discussing Quebeckers interested in moving to far Eastern Ontario border towns such as Lancaster, Blainsville, and Alexandria in leu of recently proposed tax hikes by the PQ government. Having some knowledge of this area too I find this a rather "interesting" prospect. No offense to the residents of these communities but at least in my opinion there is absolutely nothing in them. Bainsville I think has a highway rest area on the 401 right after you cross into Ontario. Google Maps says there is a McDonalds in Lancaster but the map shows it right in the middle of a huge field well away from any road. Far Eastern Ontario is far different than Southern New Hampshire. One story I have heard that I think is fairly accurate though is the CEO of Air Canada commutes from Ottawa to the Montreal HQ. Ottawa does have lots of "stuff" of course but it is over two hours away from Montreal.