Whenever people propose increasing taxes on the wealthy to maintain our needed public programs and services it doesn’t take long for someone to raise the following objection: if we do that, the rich will flee, thereby weakening rather than strengthening our (fill in the blank: city, state, or national) economy.
How seriously should we take this threat? Opponents of Oregon Measures 66 and 67, which raised taxes on the wealthy and corporations and were approved by voters in 2010, cited just this danger in campaigning against them. Among those business leaders most upset with the outcome were some of Oregon’s most well known corporate leaders, for example Phil Knight (Nike) and Tim Boyle (Columbia Sportswear). Knight gave some $100,000 to the anti-Measures campaign, Boyle approximately $75,000.
Here is what Knight had to say about Measures 66 and 67 in an article he wrote for the Oregonian newspaper:
Measures 66 and 67 should be labeled Oregon’s Assisted Suicide Law II.
They will allow us to watch a state slowly killing itself.
They are anti-business, anti-success, anti-inspirational, anti-humanitarian, and most ironically, in the long run, they will deprive the state of tax revenue, not increase it.
The current state tax codes are all of those things as well. Measures 66 and 67 just take it up and over the top. . . .
Reputable economists forecast 66 and 67 will cost the state thousands — maybe tens of thousands — of jobs, and that thousands of our most successful residents will leave the state.
Well, despite the threats, there is no evidence that the wealthy or jobs fled the state to escape the tax increases. Rather the state got some desperately needed revenue.
Here is another data point, courtesy of the Wall Street Journal, that also suggests we should take this threat of flight with a grain of salt:
According to a new study from Lloyds TSB, nearly one in five affluent Britons plan to leave the country in the next two years. That’s up from 14% a year ago. The study measured those with around $400,000 in investible assets.
Conservatives point out this sudden flight comes on the back of the 50% tax rate that was imposed on top earners during the recession. That hike was widely blamed for U.K. wealth flight and for not raising nearly as much revenue as expected.
But a closer look at the study provides a different picture. The top reason that the study group (it’s a stretch to call them “wealthy”) gave for leaving were crime and “anti-social behavior.” About the same number, however, cited the British weather as the top reason for leaving.
The study really gets interesting when you look at where these affluent folks want to go to. The top destination is high-tax France, where the leading Presidential contender is pushing a 75% tax rate on the wealthy. The second choice is Spain, followed by the U.S., Australia and New Zealand.
When asked what would make the U.K. a better place to live, most cited infrastructure spending. That was followed by “cutting red tape for business.” Cutting taxes got about the same number of votes as “improving public services like healthcare, education and the police.”
In other words, the affluent want more government services not less. And taxes were a relatively minor concern in their decision to move.
Returning to the U.S., it is important to remember that the rich have not only succeeded in capturing an ever greater share of national income, they have also enjoyed steady and disproportionately large cuts in their tax rates (see below). This trend was the result of deliberate policy, which was defended by claims that lower tax rates on the wealthy would deliver robust investment and job creation. It clearly has not worked out that way; in fact quite the opposite has taken place. This seems a very opportune time to reverse the trend.