11/14/2017

The Great Progressive Tax Escape

The Wall Street Journal

Democrats contend that marginal tax rates don’t matter to investment and growth, and even some conservative intellectuals are conceding the point. But the evidence from wealth fleeing high-tax states shows how sensitive the affluent are to rate increases.

The liberal tax model is to fleece the rich to finance spending on entitlements and government programs that invariably grow faster than the economy and revenues. IRS data on tax migration show this model is now breaking down in progressive states as the affluent run for cover and the middle class is left paying the bills.

Between 2012 and 2015 (the most recent data), a net $8.5 billion in adjusted gross income left New Jersey while $6.2 billion poured out of Connecticut—4% of the latter state’s total income. Illinois lost $13.6 billion. During that period, Florida with no income tax gained $39.3 billion in AGI. 

Not surprisingly, income flows down the tax gradient. In 2015 New York (where the combined state and local top rate is 12.7%) lost a net $850 million in AGI to New Jersey (8.97%) and Connecticut (6.99%). At the same time, the Garden State gave up $335 million to Pennsylvania (3.07%), and $60 million left Connecticut for the state formerly known as Taxachusetts (5.1%). Taxpayers from New York, New Jersey and Connecticut escaped to Florida with $3.2 billion in income. Florida Gov. Rick Scott ought to pay these states a commission.

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The Reagan Tax Cuts Worked

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

-- Daniel J. Mitchell,

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