Taxing the rich

Anyone who supports fair taxation has heard this line a million times: “If you raise taxes on the rich, they’ll just move away.” The argument sounds commonsensical. Opponents of higher taxes on the wealthy make it without much fear of contradiction. But new research exposes this argument for what it really is, a fabrication.

A joint study from Stanford University and Treasury Department researchers, examined 3.7 million tax-filer records over a recent 13-year period. Millionaires simply do not flee in droves to low-tax states, the data show, when their home states raise taxes on the wealthy.
Millionaires, it turns out, consider many factors when deciding where to live. Their family ties, their professional and personal contacts, and their businesses all make them less likely to migrate than the general population, not more.

This report should give a major boost to state efforts to raise revenue from the ultra-wealthy. The usual suspects have lost a key weapon in their arsenal. (“Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data”, Cristobal Young, Charles Varner, Ithai Lurie, and Richard Prisinzano, American Sociological Review, May 2016).

I believe quite a number of people left France when Hollande raised taxation significantly. Gerard Depardieu was the main name mentioned. In fact, our next door neighbours in London moved from Paris (he is a banker) to work in the City, complaining about tax, although that was only one reason. So it can happen, although its effect on the economy is probably slight. Anyone so hung up on tax, aand tax alone, as to permanently leave their country must be a rare bird. The problem is that the dictum about driving out the rich, made up as a political weapon to frighten the public and opposition parties, has now been repeated with religious passion so often it is now part of right-wing received belief, and is trotted out by every think-tank and conservative news operation, without thought, statistics or proof. People now believe it. It will take more than one report to shift it. Moght I suggest that some might just work harder to replace the cash lost to taxes?

  • Owen Bell

    I think this depends on the country. France is in the EU, so people can move their money to other EU countries while doing business in France with extreme ease. Also taxes in France were already very high before Hollande raised them, so it’s understandable why people complained.
    America is in a very different situation. It’s a much larger economy than France’s, and also far more protectionist. So were America to raise its taxes, people would find it harder to move away and still do business there. They would also be less inclined to take their money out of such a large economy with so many opportunities.
    The IMF recently said that the ideal top rate of tax is 44%. This is roughly what it is in Britain, France and Germany. But in America, its only 39%. And when you consider that the American tax code contains so many loopholes and deductions, I think taxes can be raised there with little capital flight.