Paul Jay discusses higher taxes and migration with Cristobal Young

Transcript PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Washington. As protesters marched in support of public sector workers in Madison, Wisconsin, in their battle against the governor, one of the things we saw on signs was "tax the rich". Well, some people say that if you tax the rich at the state level, in other words a state income tax or a state estate tax, the rich will simply leave the state. Or will they? Well, research suggests perhaps they won't. Now joining us from Stanford University in California to discuss this is Cristobal Young, who's done some work on this. Thanks for joining us, Cristobal. CRISTOBAL YOUNG: Hi, Paul. JAY: So what does your research show? If you have higher income taxes or estate taxes, do the rich just bolt? YOUNG: Sure. So [incompr.] specifically at New Jersey, and we brought in the complete income tax data from the state of New Jersey, which offered, essentially, a complete census of very high income earners and millionaires in the state, and we looked at a very large millionaire surtax that was imposed on New Jersey in 2004. And we found that the rates [incompr.] migration essentially did not change at all for the overall group of people who were affected by the tax, which is to say, millionaires. At the same time, there are some groups who do appear to be more sensitive to the tax, people who live entirely off capital market earnings, investments, essentially. So people who are not tied to employers in this state of New Jersey were a little bit more inclined to leave. And also retired people who were earning very high incomes were also more inclined to leave. Still, we found that the taxes raising about $1 billion a year in net revenue was essentially zero outflow in terms of tax flight. So very little tax revenues were leaving the state. JAY: Now, the tax was, if I--it was about 2.9 percent, was it? YOUNG: It was an additional 2.6 percent marginal tax on people earning over $500,000 a year. So this was actually the biggest millionaire tax that has ever been passed in the US, at least in the current round of experimenting with millionaire taxes. And about eight states have followed New Jersey's lead. JAY: Now, do you get any sense--I suppose there's some line. If you taxed everything they had, they would leave. So somewhere in there there's a line you can't cross before the migration gets too serious. Do you get any sense what that line is? YOUNG: Yeah, no. I mean, we can't see it in our data. So it's true. I mean, we are talking about even people earning--people who are earning over $1 million a year, they're paying close to--they're paying about an extra 2.5 percentage points of their income. So it's not a large kick if you think about the costs of migration, in terms of you have to be able to sell your house, you're going to buy a new one. You're going to separate from your friends and family. You're going to separate from your business connections and your neighborhood. JAY: Kids going to school would be a big one, I guess, if you have kids in the mix. YOUNG: For schools. Exactly. So especially for people who have kids, moving, taking their kids out of school and moving to a new state and starting over is a very difficult thing to do. So--. JAY: And the truth is, the richer you get, in some ways the less meaningful this tax is anyway. Like, even if you do pay hundreds of thousands of dollars more tax, if you're a multimillionaire or billionaire, that's actually not that much money. YOUNG: Yeah, that's right. And so what this tax does is, for people earning about $1 million a year, they're paying about an extra $20,000 a year. So it is not--it is not a big chunk of their income. And whether or not it's going to force them to really--going to really lead them to, you know, uproot the lives of their families and really make new connections elsewhere--. JAY: Do you get any sense, are any states planning to go more than the 2.6 percent? Like, I'll ask again: what do you think the limit here is?

YOUNG: It's really hard to say what the limit is. I mean, if you increased the tax rate by 10 percent, would you see no tax flight? I mean, I think you would, I think you would start to see. So I would be--personally, I would be cautious about the ceiling. What our research shows in New Jersey is that the largest of the millionaire taxes that are sort of on the table right now have not had any impact in terms of tax flight. So I think in terms of the kinds of policies that we're talking about, a modest surcharge on millionaires is not going to have any migration effect. Now, during the recession, one of the things that's happened is that migration rates across states have plummeted back to levels that we haven't seen since the 1950s. So migration rates across-state are the lowest level they've been in 60 years. It's because during recessions it's very hard to move. There aren't jobs that are drawing people away. And particularly, if you're going to move, you have to be able to sell your house. If you're going to sell your house during a recession, during a housing market retrenchment, it's not the best idea. So during recessions, temporary surtaxes, I think, basically do an end-run around the risk of migration. And if you have it as a temporary tax, then you could reevaluate this as the economy improves, whether you need this additional revenue and whether or not you become worried as the economy improves that people might be able to start selling their homes from migrating. So I really think that a temporary surtax during a recession is probably a safe bet in terms of having any negative byproducts in terms of migration.

JAY: We've talked about what happens with wealthy people when their income tax gets raised. Within certain limits, the evidence is they don't move. What happens with the general population within a state if income taxes go up? Do you see that kind of flight? Now joining us to talk about that is Jeffrey Thompson. He's coming to us from the PERI institute of Amherst, Massachusetts. Thanks for joining us, Jeff.

JEFFREY THOMPSON: Glad to be here.

JAY: So what does the research say? If states increase income taxes and/or estate taxes, what actually happens? What's the research?

THOMPSON: The research on migration behavior suggests that taxes play very little role in where people decide to live. And that would come as a huge shock to politicians, but for researchers in this field it's not at all surprising. It's a finding that's been verified in a number of very good academic studies, and it's a finding that's supported in my recent paper that I'm putting out as well.

JAY: Well, talk about some specific research that you refer to. What did you find?

THOMPSON: Sure. My work is looking at income taxes overall, so I'm not isolating specifically the rich, but they're included in the lot. What we show is that when states increase their income tax, for example, to raise revenue to finance public services, that there's very little impact on people's migration decisions. But if you imagine that the state, say, raises its income tax, raises a lot of revenue from doing it, and then holds a big bonfire and burns the money, sure enough, that will make it so that some people opt to leave your state and fewer people will decide to move to your state. For example, a one-point increase in your income tax, depending on what state you're looking at--in Massachesetts it would mean that a couple of thousand people leave your state or decide not to come to your state.

JAY: And what's the net of that in terms of how much income you pick up versus how many people leave?

THOMPSON: One-point increase in Massachusetts' income tax rate would bring in about $2 billion, and the combined effect on just looking at the tax side, you're looking at about 1,800 fewer people, on net, coming to or staying in your state.

JAY: And if you figure out how much money that 1,800's worth, what do you come up with?

THOMPSON: Well, in terms of--well, the tax would bring in $2 billion. And if you just burned it, like I'm saying, then you would expect 1,800 fewer people to be in your state. But the point is that no state ever burns $2 billion. What they do is they decide to spend it. And when they spend it on services, they end up hiring people. And what the research shows again and again is the factors that motivate people's migration decisions are jobs and family decisions and housing decisions. So if Massachusetts, instead of burning the $2 billion, decides to hire people to provide services, then the employment effects of that taxation decision swamp the deterrent effect. So people are going to come to Massachusetts for the jobs. When there are more jobs in the state, fewer people will leave.

JAY: Right. So talk about how you came to this conclusion. Like, what research, what states did you look at? What models? How do you come to this conclusion?

THOMPSON: Sure. We're using migration data from the Internal Revenue Service. They have data tracking the flow of people leaving states every year for 20 years. So we know the number of people leaving New Hampshire and going to North Carolina. So the whole country. And what we've done is we've done a statistical analysis to explore the relationships between peoples' migration decisions and different economic factors and different fiscal factors--state spending, you know, crime rates in the state, income tax rate. And so the relationships that we identify in that statistical analysis confirm mostly everything that's already been said in this literature, which is it's employment that matters; [in] people's migration decisions, taxes play very little role.

JAY: So what the research suggests, then, within certain limits--and I guess those limits are still to be explored, but it's not just a truism that if taxes go up, people leave, and it's not a truism that if you tax the wealthy within a state, the wealthy leave. So maybe it is time for some experiments on this. Thanks for joining us on The Real News Network.

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