Terrance Heath

Thirteen Things We Know About Taxes

Filed By Terrance Heath | April 23, 2011 12:00 PM | comments

Filed in: Politics
Tags: finance industry, money, New Jersey, protest, study, Tax Day, taxes, Tea Party, wealth

"What do we think? What do we know? What can we prove?" That’s a quote from And the Band Played Ontax-protest.jpg, HBO’s adaptation of Randy Schilts’ book about the beginnings of the HIV/AIDS epidemic. It’s the mantra of CDC epidemiologists searching for the cause of the epidemic, using empirical evidence. In that context, what you think, what you know, and what you think you know is meaningless unless you can prove it.

In Washington, D.C., it gets turned around: How can we prove what we think we know? When it comes to conservatives and taxes, this couldn’t be more true.

The problem is, all the evidence disproves what conservatives think they know about taxes. The latest example a study (PDF) that debunks the conservative talking point that rich people will run for the borders if their taxes go up.

The rich didn’t leave  New Jersey, when the state imposed a "millionaire’s tax" in 2004.

The study, by sociologists Cristobal Young at Stanford and  Charles Varner at Princeton, studied the migration patterns of New Jersey's millionaires before and after 2004, when the state imposed a "millionaire's tax" that raised rates on those earning $500,000 or more to 8.97% from 6.37%.

The study found that the overall population of millionaires increased during the tax period. Some millionaires moved out, of course. But they were more than offset by the creation of new millionaires.

The study dug deeper to figure out whether the millionaires who were moving out did so because of the tax. As a control group, they used New Jersey residents who earned $200,000 to $500,000-in other words, high-earners who weren't subject to the tax. They found that the rate of out-migration among millionaires was in line with and rate of out-migration of submillionaires.  The tax rate, they concluded, had no measurable impact.

Wait a minute. Not didn’t the population of millionaires plummet, but it actually increased due to the creation of new millionaires? But, but, but...That can’t be. New Jersey should have seen its economy collapse by now, as the wealthy leave the state and take their job-creating investments with them. (It’s not just New Jersey, either. The same holds true for New York.)

Actually, the study dug deeper and found that the millionaires most likely to leave were those who were over 65 and living off their investments. Millionaires who own their own businesses or make their money close to home tended to stay put. That accounts for the large share of New Jersey’s millionaires.

I’m going to go out on a limb here and suggest that maybe business owners are more likely to stay put because, among a number of other reasons, taxes pay for stuff that make the state more attractive to businesses owners. Or maybe it’s just that revenue is how the state pays its bill, and either purchases or provides goods and services that support business directly or indirectly. (Healthy, educated workers, for example, are good for business.

So, let’s add this item to what we already know about taxes to far.

We now know that:

  1. The wealthy don’t leave when their taxes go up. In fact, not only don’t their numbers dwindle, but you can even end up with more of them than you had before.

We already knew that:

  1. Tax cuts don’t stimulate the economy. Tax cuts can’t jumpstart a flagging economy, because they’re a "supply-side remedy for a problem caused by lack of demand."
  2. The wealthy don’t spend their tax cuts. Tax cuts don’t create demand because the wealthy will save the money instead of spend it. The saving rate among the rich went up after Bush’s tax cuts in 2001 and 2003. The rate fell under Clinton, when taxes went up.
  3. Tax cuts don’t create jobs. Instead of producing job growth and prosperity, the Bush era tax cuts resulted in an era of zero job creation.
  4. Tax cuts don’t result in higher revenue. In fact, economists say tax cuts do not spur enough growth to pay for themselves.
  5. Tax cuts reduce revenue. The Bush tax cuts reduced revenue significantly.
  6. Tax cuts for the rich mostly benefit the rich. Their taxes fell and their incomes increased dramatically after the Bush tax cuts, while the gap between rich and poor widened.
  7. The middle class end up paying more taxes. U.S. taxpayers with the very highest incomes pay income taxes worth only 18 percent of their income on average, compared to 25 percent for the typical American.
  8. Tax cuts don’t spread prosperity. Between 1992 and 2007, a time in which income for the average household and top one percent grew 13% and 123%, respectively, the income for the top 400 households grew fully 399%.
  9. Taxes are really low for the rich. The average federal income tax rate for the 400 richest Americans was 17 percent in 2007, down from 26 percent in 1992.
  10. The cost of tax cuts exceeds the value of budget cuts. The estimated cost to the government of the tax deal extending the Bush tax cuts for the wealthy, $42 billion this fiscal year, exceeds the stated $38 billion value of the savings from the federal budget cuts lawmakers approved last week.
  11. Some patriotic millionaires want to be taxed. One group of millionaires is saying that they are more than willing to pay more for the good of their country. The "Patriotic Millionaires" penned a letter to Obama, Senate Majority Leader Harry Reid, and House Speaker John Boehner, urging them to "increase taxes on incomes over $1,000,000."
  12. Most Americans support higher taxes for the wealthy. A full 72% of adults approve of increasing federal taxes on households making more than $250,000 starting in 2013, according to the latest New York Times/CBS News poll.

As my dad used to say, when making a convincing case for something he thought I should or shouldn’t do, "I’m not telling you what I think. I’m telling you what I know." What he mean was that he was giving me the benefit of his own empirical research, his knowledge gained "by means of direct observation or experience"

By know the empirical evidence on tax cuts -- what we know base on observation and  experience -- should make what to do regarding taxes and tax cuts a "no brainer." What we know goes a long way towards proving what progressives have long thought on the subject, and disproving what conservatives have long thought they knew.

That brings me back to the quote from And the Band Played On. I said earlier that in Washington, "What do we think? What do we know? What can we prove?" becomes "How can we prove what we think we know."

Actually, I think the screenwriters got it right. The reality in Washington is closer to the frustrated response of one doctor to the oft repeated mantra: "The only thing we know for sure is that we don’t know anything, which also happens to be the only thing we can prove."

Crossposted at Republic of T, img flickr

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#14 - saying you'll cut taxes is the surest way to win an election. If you can make the folks believe you meant -them-, you'll win by an even larger margin.