More About Jon Shure

Jon Shure

Jon Shure is Deputy Director of the State Fiscal Project.

Full bio and recent public appearances | Research archive at CBPP.org


Tax Hike Won’t Drive Millionaires from California

February 7, 2013 at 4:07 pm

History suggests that a new radio ad from Texas Governor Rick Perry trying to lure business people out of California — which recently raised taxes on incomes over $1 million, as the New York Times points out today — probably won’t turn out to be one of the best investments Texas ever made.

As our major report from 2011 explains, tax rates aren’t a big motivation for rich people to move from one state to another.  Far more important are factors like job opportunities, family considerations, housing costs, and climate.

No state that raised income taxes on the wealthy ever lost money as a result.  A handful of wealthy people might leave, but the money raised from the vast majority who stay — money that helps pay for education, transportation, and other building blocks of a strong economy — more than makes up for any loss.

Our report cited a careful study by Stanford’s Cristobal Young and Princeton’s Charles Varner showing that New Jersey’s 2004 tax increase on incomes over $500,000 raised several billion dollars over the next three years with almost no cost in terms of tax flight.  Similarly, more recent research from Young and Varner found that raising California’s top rates had little impact on the migration of high earners.

In short, while wealthy Californians might look for ways to whittle down their tax bill through loopholes, they are highly unlikely to hit the road in search of lower taxes.  As Stanford’s Young told the Times, “I suspect the accountants are a lot busier this year, but I don’t think the moving companies are getting a boost.”

Migration Myth Strikes Again

April 16, 2012 at 12:41 pm

Proponents of the migration myth are at it again, trying to sell the idea that if states with lower taxes gain more population than states with higher taxes, taxes must be the reason.

To prove that people migrate from state to state in search of lower taxes, the latest edition of the American Legislative Exchange Council’s (ALEC) “Rich States, Poor States” report notes that, over the past two decades, Hawaii (which has an income tax with a relatively high top rate) has lost twice as many residents to other states as Alaska (which has no income tax).

Wait, you might ask.  What about differences in the job market?  Oil prices?  Housing costs?  Shouldn’t we take these and other potential factors into account?

Indeed we should.

As we discussed in a major report last year, the vast majority of people live their whole lives in the state where they were born, and the main reasons people move from one state to another are job prospects, housing costs, family considerations, and climate. So, for instance, to draw any meaningful conclusions about our two newest states, you’d want to factor in that housing in Anchorage is a bargain compared to Honolulu.  Studies by economists and demographers that take into account the wide range of other factors show consistently that taxes have little if any impact on migration.

The ALEC report ignores the growing body of research that debunks the tax-flight myth, instead citing statistical tidbits that might seem compelling at first glance but wilt under scrutiny.

For example, ALEC attributes Florida’s 46 percent population gain between 1990 and 2010 to its lack of an income tax, ignoring the fact that neighboring Georgia — which has an income tax — grew by 50 percent over that period.

As for Alaska and Hawaii – the states that ALEC uses to illustrate the tax-flight myth — IRS data show that, in fact, slightly more households are moving from no-income-tax Alaska to high-income-tax Hawaii than the other way around.  In 2010, the last year for which data are available, 300 households moved from Alaska to Hawaii; 287 moved the other way.

As our report stated:

It would not be credible to argue that no one ever moves to a new state because of the desire to live someplace where taxes are lower.  But neither is it credible to say that taxes are a primary motivation, nor that migration has a large impact on the revenue impact of tax measures.

Rankings Say Little About States’ Real Business Climate

January 31, 2012 at 3:48 pm

If someone told you a city’s average temperature but not how much it rains there, how would you know whether you liked its climate?  The Tax Foundation’s annual ranking of states’ “business tax climate” is similarly lacking.

In the Tax Foundation’s scale, how a state compares to other states starts and ends with its taxes — generally, the lower the better.  But tax levels don’t tell you if the schools are good, the transportation system is state of the art, or communities are safe.  All of those, not just taxes, determine a state’s economic fortunes — as this study from the Federal Reserve Bank of Cleveland on the importance of education shows.

And since schools, roads, and other necessities cost money, the ranking actually rewards states that don’t invest in what makes them attractive places to live and work.  The Tax Foundation this year gave its top ranking to Wyoming, a state with not a single Fortune 500 company.  If the rankings were meaningful, the streets of Cheyenne should be crawling with CEOs.

Peter Fisher of the Iowa Policy Project, whose book “Grading Places” shows why rankings like these are suspect, points out that the Tax Foundation study doesn’t even accurately report the actual amount of taxes that businesses pay in a state:

Rather than measuring what businesses actually pay, [it] instead focuses on selected characteristics of the tax code while ignoring significant features.  Results differ wildly from a ranking based on what businesses pay in many cases.

As a result, “In some cases, lower taxes actually produce a worse score” in the Tax Foundation rankings.

Fisher concludes, “What this annual release offers is, at its core, an indefensible mish-mash of ‘Stuff the Tax Foundation Doesn’t Like,’ which should be the title.”  He’s right.

Millions Not Moving

May 13, 2011 at 10:05 am

A recent Reuters article headlined, “Americans try to outrun state, local tax hikes,” suggested that people are fleeing their place of residence to avoid higher state and local taxes.  It’s as if places like Stamford, Ct. and Far Hills, NJ are about to become ghost towns.

Noting that some states in recent years have raised income taxes on the most affluent households, the piece cited a New York accountant who has lately been “fielding a lot of calls from clients in neighboring states — Connecticut and New Jersey.”

Leaving aside just how many calls is “a lot” (the article doesn’t say), and the fact that last year New Jersey actually lowered its tax on incomes over $1 million,  this is yet another example of perpetuating the myth that higher taxes cause a mass exodus from states.

Yes, some people move, mostly for jobs or personal reasons.  A few are retirees who have more latitude in deciding where to reside, but whether they are lured to a state because of its taxes, the weather, or cheaper housing is very hard to know. But the vast majority of people do not move.  They contribute significant revenue to their states for education, healthcare, transportation, and other necessities for building a strong economy with good jobs.

The two most recent studies looked at New Jersey and the New England states.  As Robert Frank blogged in The Wall Street Journal about the New Jersey report, “a new study focusing on New Jersey provides some of the most detailed evidence yet that so-called millionaire taxes have little effect on the movements of millionaires as a whole.”  The New England report concluded, “Evidence from surveys of migrating households, the existing economic literature, and the new analysis in this paper all suggest that taxes do not play any notable role in causing people to leave a state.”

Yet articles like the Reuters piece appear with disappointing regularity to suggest something is going on that isn’t. States are suffering from an unprecedented drop in revenue because of the recession and its aftermath.  Upper-income tax increases help to solve that problem, not make it worse.

It is easy to find anecdotes about people fleeing their states to avoid high taxes.  It would be even easier to find people who aren’t moving because there are so many more of them. But somehow that doesn’t seem to be newsworthy.

Small Business Group Needs to See the Big Picture

April 22, 2011 at 4:30 pm

The chief economist of the Small Business & Entrepreneurship Council complained this week that states have raised taxes in the recession — which he says hurts the economy.  The commentary was far off the mark in ways that could threaten states’ ability to make the investments needed to create jobs and promote economic recovery.

First of all, it’s grossly misleading to say states raised taxes and just leave it at that.  Every one of the more than 30 states that have raised taxes since the recession caused a historic collapse in revenues also cut spending.  In fact, states cut spending by more than they raised taxes. But states realized that if all they did was cut spending, the resulting job losses and weakening of public services would make a terrible crisis even worse.

Second, the argument that tax increases suck money out of the economy ignores what states do with the revenues they collect.  States spend it — quickly and close to home — on salaries, purchases from private businesses, and the like.  That puts money back into the economy, which is especially important when the private sector is faltering.

If states relied on a cuts-only approach to this crisis — instead of a balanced approach that also includes higher revenues — two things that are bad for business (and everyone else) would happen.  Investments in education, public safety, transportation, and all the other building blocks for economic growth would suffer.  Also, already high unemployment rates would just get higher.  More public-sector and private-sector workers would lose their jobs.

There’s nothing businesses need more today than customers.  Cuts-only state policies that slow the economy and put more people out of work would harm businesses where they need help the most — at their front door.