Last Call

One of the major arguments I keep hearing about why states (and extrapolating, the federal government) can never, ever raise taxes on the rich is because they'll simply leave, and they can more than afford to.  But Ezra Klein discovers that this just doesn't happen when taxes on the rich go up.

The Center for Budget and Policy Priorities, which is really stellar on state tax issues, has put together a list of relevant studies on this question. All of them find that the effects of migration between states of higher taxes are minimal:

1) Economist Andrew Leigh did a national study (PDF) looking for effects of state income tax rates on migration patterns. He could not find a statistically significant relationship.

2) After Maryland instituted higher tax rates on wealthy individuals in 2007 and 2008, tax returns from millionaires dropped. But the Institute on Taxation and Economic Policy found (PDF) that the drop was not due to millionaires leaving, but to the recession making them no longer millionaires.

3) The California Budget Project notes (PDF) that California imposed a temporary tax increase on high earners from 1991 to 1995, and the number of millionaire filers increased by 33.4 percent. Another high-income tax hike was implemented in 2005, and the number of millionaire filers increased by 37.8 percent.

4) New Jersey increased taxes on high earners in 2004, and Princeton researchers did find (PDF) that New Jersey lost $37.7 million in tax revenue after migration by wealthy tax payers. However, that number was dwarfed by the more than $1 billion overall revenue gain from the tax increase, and the number of high-income filers still increased between 2004 and 2006.

As the New Jersey numbers suggest, it would be going too far to say that state tax rates have no effect on cross-state migration. However, you have to balance that against evidence that the revenue generated by state tax increases on high earners overwhelms that lost from taxpayers' leaving.

The New Jersey study is especially telling.  Yes, some rich folks did leave New Jersey.  But most stayed, and the state got a massive revenue boost because of it.   It's funny how the Village and the Republicans are always screaming about protecting our precious rich Americans, when some of the most wealthy have no problem giving back.  Warren Buffet has said several times that the richest Americans need to pay more in taxes...but hey, all those poor people in the Senate can't afford it.