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Macro Economics
Do Taxes Really Chase Away Wealth?

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By putnid
February 16, 2010

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

As sure as the sun rises in the East, the WSJ periodically publishes an article or "study" that makes the claim that taxes on the wealthy invariably leads to some lemming-like migration of the well-heeled to more "wealthy-friendly" environs. It's all bunkum.

Let's start with an overview based on actual data:

The Census Bureau has a nifty publication that discusses geographic mobility. Sorry, it's a pdf file.

The "Reasons for Moving" are discussed starting on page 11. Table F on page 12 summarizes the reasons. Taxes aren't one of them (or, at most, a minuscule percent captured in the "Other" category).

DoctorOptimist has a far better grasp on the truth than the OP.

The WSJ simply loves to push the meme that taxes are a significant driving force behind relocations regardless of the facts. Never mind that the states losing residents are also states that have out-sourced jobs, or have lost large swaths of business enterprises (e.g., the Wall Street meltdown in NY/NJ). I submit it is the loss of job opportunities that trigger many relocations, not necessarily tax policies. And where do people go? Well, New Hampshire receives its fair share. Is New Hampshire "wealthy-friendly"? Hardly.

New Hampshire is an interesting case study. "The Live Free or Die" State has no income or sales tax, yet it has high-quality schools and excellent public services. That's impressive. Let's look at its tax structure: "Holy, Soak-The-Rich Batman!" NH imposes a tax on interest and dividends! Given that only the wealthiest (comparatively speaking) enjoy dividends and interest, the wealthiest folks in NH are picking up the freight! Wow! Why haven't they all fled? Interestingly enough, NH also taxes restaurant meals, hotel and rental cars at an 8% rate...thereby deriving a good chunk of its state revenues from business enterprises and tourists. If taxes were the critical determinant of human behavior why would anyone choose to do business or vacation in NH?

Here's another puzzler to contemplate: Which states exhibit the highest GDP per capita (granted these are 2008 data)?

Here are the top ten states with strong (relatively speaking) economies:

Connecticut
New Jersey
Massachusetts
Wyoming
Maryland
New York
California
Virginia
New Hampshire
Washington

Whoa! Most of the top ten states are the very same ones most often cited for high taxes!

Ideology is ideology. Facts are facts. I'm a facts-based person.