Why
do so many lawmakers in Congress oppose raising taxes on America's wealthy,
even just a little? The answer: We'll never really know for sure.
Lawmakers
might oppose tax hikes on the wealthy, for instance, because their rich
campaign contributors don't want to pay higher taxes. Or they might oppose
bigger tax bills for millionaires simply because they don't want to pay Uncle
Sam a cent more of their own high-dollar incomes.
Lawmakers
under the influence of either of these motives would, of course, never openly
admit to them. How could they — and still survive politically? Simple political
reality demands that wealth-friendly lawmakers must solemnly proffer much more
noble rationales for why they want to shield rich people's income from higher
taxes.
Raising
taxes on high incomes, we've been assured since long before the
current budget-balancing debate, will discourage small business "job
creators." Higher taxes on the rich, we're also told, always backfire and
never generate the revenue anticipated.
Do
these claims match up with facts on the ground? Northwestern University's
Institute for Policy Research earlier this month hosted a congressional
briefing that sought to sort out those facts.
The briefing — titled Taxing the Wealthy: What Does the Research Show? —
brought top academic tax analysts to Capitol Hill. The analysts had a good many
facts to share, to the distinct unease of the apologists for the affluent who
stopped by.
What
do the facts tell us about those small business "job creators" who'll
suffer so, as friends of the fortunate claim, if tax rates on high incomes
rise? The facts don't show much potential suffering.
Just
under 70 percent of American taxpayers making over $1 million a year, U.S.
Treasury Department figures show, do indeed report small business income
on their tax returns. But these millionaires who do report small business
income average only around 5 percent of their income from small business
operations.
In
other words, we're talking investment bankers with hobby ranches in Montana.
The vast majority of taxpayers making more than $1 million a year aren't small
business folks creating good jobs in their own local communities.
But
won't those investment bankers just flee to lower-tax pastures if Congress opts
to hike the tax rates on their incomes? Won't that exodus just negate the
revenue boost that raising taxes on the rich is supposed to create?
Charles
Varner, a fellow at Stanford University's Center for the Study of Poverty and
Inequality, has been researching what typically happens when governments raise
taxes on taxpayers of major means.
Varner
and his colleagues looked closely at tax receipts in New Jersey and California
after these two states enacted new "millionaire's taxes" in 2004 and
2005. In California, the top tax rate rose from 9.3 to 10.3 percent. After the
increase, out-migration of high-income Californians actually fell.
But
California, skeptics might argue, occupies a great deal of territory. A deep
pocket upset about a tax hike has to travel a good bit to leave California.
True
enough, but deep pockets in New Jersey operate in a totally different
environment. A New Jersey millionaire who works on Wall Street could easily
have chosen to move into lower-tax New York State or Connecticut after New
Jersey's millionaire's tax went into effect. A New Jersey millionaire working
in Philadelphia could have chosen to relocate in lower-tax Pennsylvania.
But
these New Jersey millionaires, in real life, opted overwhelmingly to stay put.
Researchers, Stanford's Varney explained at Northwestern University's congressional
briefing, have found similar patterns in Canada between provinces with
different tax rates and in Switzerland between cantons.
None
of this surprises Varney. Moving costs money, he notes. Relocating your stuff
costs a lot, and few of us can pick up stakes and move without disrupting our
networks of friends and clients.
Varney's
basic point: "Economies of place," as he explains, remain
"significant even for people at the top of the income distribution."
OtherWords columnist
Sam Pizzigati is an Institute for Policy Studies associate fellow. His latest
book is The Rich Don't Always Win: The Forgotten Triumph over
Plutocracy that Created the American Middle Class.
OtherWords.org