Friday, 5 October 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.

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