Tuesday, April 10, 2012

Does Atlas Really Shrug?

One favorite claim by the wealthiest 1% (and their lackeys) is that higher marginal tax rates at the state/local level will cause rich folks to vote with their feet, and take several jobs with them in the process.  During these times of recession and budget crises at all levels of government, when there is clearly a need to raise taxes, the rich love to scare people about this.  But is it true?

At least two recent, carefully controlled studies say no.  There apparently is little to fear about the alleged adverse effects of "soaking" the rich at the state level, or any level for that matter.  The vast majority of millionaires and billionaires will essentially stay put in the face of a tax hike, and for the very few that do leave, good riddance.  Just ask Donald Trump--despite his repeated threats to leave NYC, he never seems to get around to it.  But why do so many people still believe that there will be a mass exodus of the rich?  Part of it is due to the power of anecdotes, even though the plural of "anecdote" is not "data".  Also, superficial observational data that does not control for other variables can indeed produce spurious relationships.

In addition, the corollary idea that the states that have lower or no income taxes do better economically than states with progressive taxes is also a canard.  In fact, a recent study found that the nine states considered to be "high" in terms of income taxes actually had more economic growth per capita than the states with no income tax at all, despite (or perhaps even because of) the fact that the latter group has more income inequality than the former.  Unemployment rates, on average, were roughly equivalent between the two groups of states as well.  So much for Atlas shrugging.

We feel it is very important to debunk this idea now.  The question is, will our elected representatives listen to the truth?

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