One of the best testing grounds for the \’tax migration\’ theory is among individual states in the United States, which each levy variable state taxes (on top of nationwide Federal taxes,) and where cross-state migration is far easier than moving, say, to a different country with a different language and different laws and different people.
And here the evidence is unambiguous. Take this Stanford paper, for instance, which finds \’negligible\’ effects from a large state tax hike in New Jersey. Or this ITEP paper entitled \”Where Have All of Maryland’s Millionaires Gone? (Nowhere – They’re Probably Just Not Millionaires Anymore.) Or this, on New York, or this, on Oregon. (From those links, get a load of that repeated Wall Street Journal hyper-ventilation, in the face of all the evidence). More generally, take a look at Citizens for Tax Justice\’s Evidence Continues to Mount: State Taxes Don\’t Cause Rich to Flee, which begins:
\”There’s been a lot of good research these past few years debunking claims that state taxes – particularly income taxes on the rich – send wealthy taxpayers fleeing from “unfriendly” states.\”
What they\’re showing is that a change of a percentage point or two doesn\’t change behaviour very much. For the real point is in the line \”on top of nationwide Federal taxes\”. that the State tax rate moves from, imagine, 5 % to 7% on top of the Federal rate of 35% or 39% isn\’t, I think we\’ll all agree, going to produce much effect on anyone.
This is rather different from say, the French move from 50% to 75%. Which is just one of the general problems with the TJN. They don\’t seem to have caught up with the neo-classical revolution. You know, that 1870s, 1880s stuff, the marginalist revolution? Even if you don\’t want to do that (and Ritchie has most amusingly, and repeatedly, claimed that all neo-classical economics is wrong) surely the idea that the size of the change in behaviour will be linked to the size of the change in incentives makes simple and common sense?
A couple of notes here: State taxes can be used as a deduction in filing federal taxes so some effect of a state tax raise are mitigated here.
Also, one has to consider not only cost of moving vs tax increase but also the question of where does one go in the first place. Massachusetts (known as Taxachusetts in US) is getting ready to raise the rate 1% to pay for public transport. Now is that enough after federal deduction to motivate people to quit their job, sell their house, take the kids out of school? Hard to say but the high or low State tax status does feature prominently in negotiations for talent in the NBA (that National Basketball Association for the cricket and rugby crownd), for example. League rules include luxury tax penalties for overpaying players so even obscenely weathly Russians are bound somewhat and this makes it easier for teams from low or no tax states to put together a talented team for less money.
Tim don’t try to use logic. For a sane person to try and reproduce a similar mindset to the TJN first take a large quantity of hallucinogens. Then dig a hole in the garden, better yet dig the hole first, digging holes high can be tough. Then kneel and stick your head in the hole having someone fill in around your head and compact the dirt. Once your hallucinogen filled head is securely planted in the ground have a couple folk come round and kick your rear end for 30 mins. Remove head from earth, take another hand full of hallucinogens whilst being sprayed with cold garden hose water.
Once this process is complete, sit down in your shed and write drivel. Your state of mind will be replicated as close as possible to that of the TJN.
Although I do remember reading that US military personnel are allowed to chose a home state for tax purposes whilst on service abroad without having to show a connection with that state. Unsurprisingly, many choose states that levy no income tax.
Well, part of the spoiler in all this is a tendency to see human beings as economic units. No one factor, such as economic benefit, entirely decides behaviour. People tend to resist moving from place to place because they are to some greater or lesser degree geographically and culturally rooted. They may just like where they live, or have a particular cultural attachment. Even ghastly countries hold onto most of their populations; some East Germans ran away. Most didn’t. Speaking for myself, I think England is turning into a shit-hole, but I really don’t like the idea of leaving the warm beer, cricket on the green, stiff upper lip, Rule Britannia, kebab shops, happy slapping, looting riots… where was I?
So it depends how deracinated our potential migrants are. Or whether they’re just fond of the particular mansion they live in.
I think the point is, from my perspective, modern governments generally employ a policy of testing just how far they can push everyone. Anglosphere governments in particular have learned that they can be utterly beastly and most of us still stick around tolerating bullshit that a few decades ago people would have said would ignite revolution. Part of the problem is that moving either means living in a radically different culture, being an outside, not knowing the language, or moving somewhere similar and not much better, with the extra downside that you’d be stuck with ghastly uncivilised people like Americans.
So, we just stick around, most of us. It’s all a bit depressing really.
Hmm. ITEP is partisan. Looking at their numbers it works out that the millionaires is probably roughly revenue neutral –
The rise in tax on the millionaires probably cancels out the loss of an 200 millionaires a year moving out more than normal. (This is back of the envelope stuff). Add in the negative incentive effects, and it probably is marginally bad for the Maryland economy. But given we are talking about 2-3% on tax rates, these are the kind of effects one would expect.
Is just terrible – no real data and bizarre assertions about preliminary data and final data that tell us nothing. That said I’m unconvinced by the other side claiming billions in taxes lost to Maryland.
Then I’m assuming that the authors of this particular post would logically assume that a 99% tax rate would not only be ‘socially desirable’ but would ‘not encourage a change in behaviour’ – as many on these threads have pointed out, it really beggars belief that this individual (and it is Murphy) has any influence whatsoever, let alone that he stands to take a leading role in advising the incoming Labour government in 2015 – desperate stuff, truly desperate…
I live in CH. Tax rates vary WIDELY from council to council, and canton to canton.
I am moving house next week.
Did I take tax rate into my cost of living calculation? Damn right I did!
The Stanford paper is far better than any of the crap produced by ITEP. It plausibly suggests that the impact of the tax on migration is low – the top rate for those earnings more than 500K rises to 8.97% from 6.37%. In practice the effect is smaller, with the effective tax for those in the 3mn+ bracket going from 4.6% to 6.7%.
They control for migration patterns pre- and post the tax change (using as their control group those earning 200-500K, who see no change in their tax rate and find that although post-tax rise migration increases, it does not increase statistically significantly different from the control group. They suggest increased migration in the post tax rise period reflects very high house prices and thus increased mobility. Not convinced of this, but certainly their analysis suggests that the reaction to this tax rise is limited – but non-zero.
I moved countries (UK->CH->US) after I heard Denis Healy claim he was going to squeeze the rich till the pips squeak.
I wasn’t rich. And neither was the amount that Healy thought was “rich.” Under his regime, there was NO WAY you could get off the plantation. So I left before he could get his hands on nothing.
As for IanB’s putative downside, some of them are quite pleasant.
California is emptying out as businesses move to Texas. Is it tax? Fucking right it is.
For those interested, a panel data look across all states and over a long period 1989-2006. Some mixed evidence.