Tax Analysts Blog

Who Wants to Tax a Millionaire? Lots of People

Posted on Jul 23, 2014

On July 16 Stateline, the news arm of the Pew Charitable Trusts, published an interesting piece on the ongoing debate over taxing rich people. The article chronicles past and current efforts to impose higher marginal tax rates on the very wealthy. It discusses recent unsuccessful attempts in New Jersey and Illinois and notes that a dozen states have raised their top marginal rates since 2009. It also examines the lengthy debate between advocates for higher taxes on the wealthy and those who believe such taxes are detrimental to the economy.

The idea is simple: States need more money to fund government. Rich people have money. So it seems logical to take their money. Liberals always believe they have a political winner when it comes to higher taxes on the really rich. After all, there aren’t many of them. Taxing minorities works -- just ask cigarette smokers. A November ballot measure in Illinois will ask voters to approve a nonbinding resolution calling for an 8 percent tax on all income over $1 million, with the revenue to be earmarked for schools. Supporters will argue that schools are important and that it would be better to have fat-cat lawyers and doctors and business executives pay rather than those who bring lunch pails to work every day. Apparently, the millionaire’s tax is OK because it will be used for schools. It's OK to fleece the rich because we love children. There will be many such proposals to impose higher taxes on the really wealthy in the coming year.

Before you jump on the soak-the-rich bandwagon, you should consider a few things. First, in the long run, imposing very high taxes on the rich will eventually cause them to leave for more tax-friendly climates. Some rich folks will move to states with no income tax. But many will move from, say, D.C. to Virginia, or from New Jersey to Pennsylvania. Basically, when you tax something, you get less of it, and in this case you will get fewer rich people. You may not care whether the heart surgeon in your town moves across the river to another state. But having rich folks in your midst is usually good for property values.

And remember, talking about soaking the rich leads to some pretty slippery slopes. Getting the rich to pay their fair share is well and good, but defining who’s rich is a little trickier. Supporters couch their efforts in terms of millionaire taxes, although the levy usually kicks in at something much lower than that. For example, California’s millionaire tax imposes higher rates on those earning more than $250,000 a year. But why not define the rich as those making $100,000, as Maryland did? Someday you may be labeled rich and subject to tax.

And lest you think that the efforts to impose higher marginal rates are a Robin Hood-inspired plan to help the poor and dispossessed, think again. States do not (and should not) do a lot of redistributing to the very poor. Apart from healthcare, most state spending is on education. I have written about this before. I noted that “the real beneficiaries of most government spending, certainly at the state level, never come up. No one ever says that we need higher taxes because my friends in the construction business want new contracts. No one ever says that they want new taxes to expand bloated public employee union bureaucracies. Yes, crony capitalism and union bosses drive most calls for higher taxes.” My right-wing friends often criticize liberals calling for higher marginal taxes as delusional. But they know exactly what they’re doing. Often they want higher taxes just so they can give money to their friends.

Read Comments (5)

emsig beobachterJul 23, 2014

To the victor belong the spoils.

Mr. BultitudeJul 24, 2014

You say, "imposing very high taxes on the rich will eventually cause them to
leave for more tax-friendly climates." I'm curious what you make of the
reporting on a study by the New York City Independent Budget Office/.
In particular, the study concludes that, "High-income New Yorkers were no more
or less likely to move than other households in 2012."

david brunoriJul 24, 2014

Mr. Bultitude,

There are lots of studies showing taxes have no effect on migration (like the
one you mention), but lots of studies showing the opposite. Personally, I think
taxes matter in the long run. By the way, be skeptical when a government agency
says government actions don't cause harm.

K-I-S-S and get moreJul 27, 2014

If taxes do not cause migration then why is the fake topic du jour "tax
inversions" causing such a buzz. Seems like it is the ultimate migration?

edmund dantesJul 28, 2014

the movement of affluent people from the high-tax north to the lower tax south
for their retirement years is certainly a well-known phenomenon which no one
disputes. many lawyers have made a career of helping people change their
domiciles, to lock down the tax benefits. we've all heard anecdotes of those
who've either left completely or took steps to get out from under the
exceptionally high taxes in the northeast.

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