Building an Economy that Works for Everyone

WashACE makes LeBron James their poster child to defeat Initiative 1098

Don’t blame me, Cleveland. My accountant made me do it!

An anecdote is a useful way to breathe emotional life into important facts. But what if neither the story nor the facts pass the red face test? Case in point: Richard Davis at WashACE, who in his zeal to attack Initiative 1098, would have you believe LeBron James is more interested in his tax bill than an NBA championship ring.

First, LeBron is not exactly a sympathetic figure. It’s practically insulting to imply his behavior is similar to that of other wealthy people. I mean, who has an hour-long TV special to say, “I’m leaving”? I’m not even from Cleveland, and that really hurts.

But more to the point, there actually is some quality research about income taxes and interstate migration — and it doesn’t support Davis’ contention. Dylan Matthews posted a recent summary on Ezra Klein’s blog in the Washington Post:

Dbfclark asks:

Vis a vis the discussion on Yglesias and Delong about whether tax rates are causing high-income earners to migrate from high-tax states to low-tax ones: Is there any statistical evidence that this is going on, and if so, what is it?

The Center for Budget and Policy Priorities, which is really stellar on state tax issues, has put together a list of relevant studies on this question. All of them find that the effects of migration between states of higher taxes are minimal.

1) Economist Andrew Leigh did a national study (PDF) looking for effects of state income tax rates on migration patterns. He could not find a statistically significant relationship.

2) After Maryland instituted higher tax rates on wealthy individuals in 2007 and 2008, tax returns from millionaires dropped. But the Institute on Taxation and Economic Policy found (PDF) that the drop was not due to millionaires leaving, but to the recession making them no longer millionaires.

3) The California Budget Project notes (PDF) that California imposed a temporary tax increase on high earners from 1991 to 1995, and the number of millionaire filers increased by 33.4 percent. Another high-income tax hike was implemented in 2005, and the number of millionaire filers increased by 37.8 percent.

4) New Jersey increased taxes on high earners in 2004, and Princeton researchers did find (PDF) that New Jersey lost $37.7 million in tax revenue after migration by wealthy tax payers. However, that number was dwarfed by the more than $1 billion overall revenue gain from the tax increase, and the number of high-income filers still increased between 2004 and 2006.

As the New Jersey numbers suggest, it would be going too far to say that state tax rates have no effect on cross-state migration. However, you have to balance that against evidence that the revenue generated by state tax increases on high earners overwhelms that lost from taxpayers’ leaving.

But hey, if the facts don’t hold sway here, maybe some anecdotal evidence will: Seeing as how California and New York both have an income tax — and have four NBA teams between them — maybe Initiative 1098 is just the ticket to bring the Sonics back home from Oklahoma?

Looking for more information about Initiative 1098? Visit the Economic Opportunity Institute website.

(H/T Duly Noted)

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