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January 05, 2013 3:55 PM Get ready for post Fiscal Cliff rates to reignite the debate on tax flight

By Samuel Knight

Accountants, lawyers and other number crunching nerds are combing through the Fiscal Cliff deal to see what 2013 tax payments might look like.

The New York Times has already declared that post-Cliff tax rates might be “the most progressive since 1979.”

[The deal] raises the tax rate to 39.6 percent from 35 percent on income above $400,000 for individuals, and $450,000 for couples. The rate on dividends and capital gains for those same taxpayers was bumped up 5 percentage points, to 20 percent. Congress also reinstated limits on the amount households with more than $300,000 in income can deduct. On top of that, two new surcharges — a 3.8 percent tax on investment income and a 0.9 percent tax on regular income — hit those same wealthy households.
As a result of the taxes added in both the deal and the 2010 health care law, which came into effect this year, taxpayers with $1 million in income and up will pay on average $168,000 more in taxes. Millionaires’ share of the overall federal tax burden will climb to 23 percent from 20 percent.

Whether or not the Times is right about the historical significance of the rates - talented accountants are trained to sniff out loopholes like bloodhounds - both right and left will undoubtedly trumpet their views on progressive taxation as a result of the higher marginal rates caused by the deal.

The right will - somewhat ironically - be championing a French Hollywood star to tell a cautionary tale about the supposed dangers of left wing fiscal policy. On Thursday, French actor Gerard Depardieu flew to Russia to receive citizenship there - his passport was presented to him by none other than Vladimir Putin himself. France’s socialist president Francois Hollande is currently trying to implement a tax of 75 percent on income over a million Euros. This has, apparently, left Depardieu un peu furieux, and he has decided to defect to Russia, where income is taxed at a flat rate of 13 percent.

It’s worth mentioning, too, that he and Uncle Vova enjoy a close personal relationship - no small thing to be buddies with a leader of a notoriously corrupt country when you are considering moving there.

But when it comes to so-called tax flight, Depardieu’s “depart, adieu” (sorry) appears to be the exception rather than the rule - at least according to the Center on Budget and Policy Priorities:

On average, just 1.7 percent of U.S. residents moved from one state to another per year between 2001 and 2010, and only about 30 percent of those born in the United States change their state of residence over the course of their entire lifetime. And when people do relocate, a large body of scholarly evidence shows that they do so primarily for new jobs, cheaper housing, or a better climate. A person’s age, education, marital status, and a host of other factors also affect decisions about moving.

The CBPP also cited “perhaps the most carefully designed study to date” on tax migration in New Jersey. That report concluded that there was a massive gain in the Garden State’s tax revenue after it raised marginal rates on the rich in 2004, and that the outflow of taxpayers was minimal:

At most, the authors estimated, 70 tax filers earning more than $500,000 might have left New Jersey between 2004 and 2007 because of the tax increase, costing the state an estimated $16.4 million in tax revenue. The revenue gain from the tax increase over those years was an estimated $3.77 billion, meaning that out-migration — if there was any at all — reduced the estimated revenue gain from the tax increase by a mere 0.4 percent.

This makes sense. While some might be encouraged to pack up and leave because of a tax increase, it would be a very difficult conversation for most people to have: “Kids, say goodbye to all your friends, teachers and classmates. Mommy and daddy don’t want to pay more taxes on their millionth dollar.”

Detractors of the CBPP study have tried to discredit it by crying hypocrisy over its recognition that some people move because of higher taxes. But the existence of tax motivated migration is not the issue here. The CBPP, despite the unfortunately misleading title of its report (“Tax Flight is a Myth), is simply trying to point out that net migration due to higher marginal taxation is largely negligible, and that it won’t come close to canceling out the windfall state coffers enjoy as a result of demanding that richer people pay more.

It’s worth keeping that in mind the next time a prominent right wing blowhard threatens to move to Dubai if he or she doesn’t get the Bush tax rates back.

Samuel Knight is a freelance journalist living in DC and a former intern at the Washington Monthly.

Comments

  • mb on January 05, 2013 4:25 PM:

    It's notable that the love of money trumping love of country or home region makes perfect sense to rightwingers many of whom worship a deity that said that the love of money is the root of every evil thing.

  • schtick on January 05, 2013 5:28 PM:

    mb; It's also the teapubs that keep saying the government doesn't work and is broken and keep getting re-elected to prove it.

    Aside from the new rates, what do those millionaires and billionaires REALLY pay in taxes? Think about it. Even Willard paid less than 15% and I'm willing to bet in most cases it was a lot less. And he's no different from the others looking for loopholes to pay less.

  • jjm on January 05, 2013 5:47 PM:

    Does Russia have no taxes on the ultra rich? Is that what a formerly socialist country got transformed into-- a tax haven for the .01%?

  • bigtuna on January 05, 2013 5:52 PM:

    If people were so concerned with taxes, they would all move to Wyoming. Or, in the Portland, OR area, everyone would move to, and work in Vancouver, WA, [current populations, 161 k; no state personal income tax] and shop in the Portland, Or [pop. 584 k; no sales tax] area. And, places like Beaverton, Hillsboro, Tigard, Tulatin, Lake Oswego, should not have grown.


  • David Martin on January 05, 2013 6:11 PM:

    It's no accident that Portland's thriving Jantzen Beach shopping area is immediately across the bridge from Vancouver, Washington. Billings, Montana, was more of a nuisance for Wyoming residents to get to, but there were plenty of vehicles with bucking horses every Saturday.

    I currently live in a corner of Florida that is distinctly a tax haven for welll-to-do people from the high-tax Northeast. The upper end of the local housing market is thriving, while the middle is still in the dumps. Perhaps would-be immigrants flee when they discover the exorbitant homeowner insurance rates.

  • jhm on January 06, 2013 6:54 AM:

    Of course the actual emigration has to be looked at in combination with the ease of finding havens for one's money, not only one's person. Why move to a second world country when you can stay and park your cash in Berne?

  • zandru on January 06, 2013 11:11 AM:

    Let 'em all move to Russia.
    "
    They'll need that extra money they "save" on taxes to pay for basic protection of their homes, selves, and assets; to pay for top-notch medical care (versus what nearly everyone else gets); to keep warm during the notorious Russian winters; to obtain edible, relatively safe food ...

    The flock of "libertarian" billionaires can then truly experience a society in which it's every man for himself, with every other man's hand against him, or in his pocket.

    If they make it back alive, they'll be lib Dems.

  • Linigaiccah on January 07, 2013 12:00 AM:

    Hello. And Bye.

  • smartalek on January 07, 2013 12:43 PM:

    Linigaiccah, we hardly knew ye.