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.

Exposing the Migration Myth … Again

April 7, 2011 at 3:53 pm

Between now and “tax day” on April 18, we’re going to see a lot of misinformation about the impact of taxes on people’s lives — like the oft-repeated myth that state tax policies cause great numbers of people to flee one state for another. In reality, people move for lots of reasons, and taxes make almost no difference at all.

A recent CNBC.com article advanced the tax-them-and-they-will-flee canard, noting in part that the top three destinations of people who left California between 2000 and 2008 were Arizona, Nevada, and Texas — which it calls “low-tax states.” But it failed to mention that during the same period, the top destination for people who left Arizona, Nevada, and Texas was … California.

Were they trying to escape those states’ low taxes? Of course not. Mostly, people move because they got a better job, they want to be closer to family, or they need to find more affordable housing. (Housing cost differences from state to state usually dwarf differences in taxes.)

Study after study shows not only that taxes aren’t a significant driver of state-to-state migration, but that when states raise taxes — especially on high-income people, who tax foes claim are the first to move in search of lower marginal rates — they generate major revenue gains to help meet public needs.

Conversely, if states slash taxes in the mistaken belief that that will keep people from moving, public services like education, health care, and infrastructure will suffer. People and businesses alike care about those things, too, when deciding where to locate.

Because the recession and its aftermath brought an unprecedented collapse in revenues, states face a widening gap between needs and resources. We’ll keep pointing that out when anti-tax advocates use the migration myth to muddle the debate over how states should set and pay for their priorities. As they struggle to meet rising needs, states should act on the basis of real-life considerations, not cherry-picked data and false assertions of cause and effect.

Tax-Flight Arguments (Still) Don’t Add Up

February 15, 2011 at 1:41 pm

Two governors are proposing this week to raise taxes on their state’s wealthiest residents.   Today, Minnesota’s Mark Dayton proposed higher income tax rates on taxable incomes above $150,000 and a surtax on incomes over $500,000; tomorrow, Connecticut’s Daniel P.  Malloy is expected to propose a higher rate on incomes over $1 million.

Some critics will surely claim, as they have in other states, that higher-income people will flee from the state.  No such flight has occurred in other states that raised top rates, but that won’t stop these attacks, as some recent examples show:

  • A Bloomberg News story headlined “New Jersey Population Growth Slows as Taxes Push Some to Flee” noted that the Garden State’s population grew much more slowly between 2000 and 2010 than most other states.  It suggested that New Jersey’s top income tax rate — now 8.97 percent — was to blame.But the 8.97 percent rate affects only a tiny share of New Jersey filers — the 1.2 percent with taxable incomes over $500,000 — and those folks aren’t leaving.  Quite the contrary,  there’s strong population growth within that bracket:  during roughly the same time period (1999-2008), the number of New Jersey filers with incomes over $500,000 grew by more than two-thirds.

    As two Princeton University researchers, Cristobal Young and Charles Varner, conclude in a new report on a 2004 measure that set the 8.97 percent rate:  “While in principle it is easier for tax avoiders to migrate out of state than out of country, the reluctance of people to do so gives states significant room to tax top incomes.  Indeed, we estimate that New Jersey’s new tax raises nearly $1 billion per year, and tangibly reduces income inequality, with little cost in terms of tax flight.”

  • A Connecticut Policy Institute report contends the state’s top income tax rate of 6.5 percent is causing residents to flee.  But as Robert Frank pointed out in the Wall Street Journal, the state’s population of top-income households is growing, not shrinking (as in New Jersey).  And many of those who leave go to New York, where tax rates are higher.
  • An Ocean State Policy Research Institute report claims that Rhode Island’s estate tax (which applies to estates worth more than about $850,000) is the main driver of out-migration from the state.  But the report’s spurious reasoning earned it a “false” rating from PolitiFact Rhode Island and a stinging rebuttal from The Poverty Institute of Rhode Island.  Among other problems, the study argues that many residents are fleeing Rhode Island for Florida because the latter lacks an estate tax, even though the number of migrating residents actually fell in the years after Florida eliminated its estate tax.

States are addressing huge, recession-induced revenue shortfalls by cutting everything from kindergarten funding to services for Alzheimer’s patients — and more deep cuts are on the way.  Policymakers should ask those who can best afford it to pay somewhat more, solid in the knowledge — and despite assertions to the contrary — that they won’t flee from higher income taxes.  In short, policymakers should base taxes on the cost of meeting real needs, not on unfounded fears.

Many Wealthy Moving Down, Not Out

December 22, 2010 at 3:50 pm

The Wall Street Journal’s determination to use any available shred of evidence to argue that state tax increases send people fleeing to other states reminds me of the old expression that to someone with a hammer, the whole world is a nail.

Earlier this week, a Journal editorial pointed to new data showing Oregon’s recent tax increase took in less revenue than predicted as proof that people responded to the tax increase by leaving the state.

Here’s what actually happened.  The new data show that last year, the number of Oregon households with incomes high enough to pay a recently enacted tax increase was some 10,000 smaller than state officials had predicted.  However, the total number of tax returns filed exceeded the state’s predictions, as the Oregon Center for Public Policy explained.  That hardly makes a case for outmigration.

It’s far more likely that fewer wealthy people filed tax returns because there were fewer wealthy people, period.  Incomes go down in recessions, and the biggest drops often are among the wealthiest people, whose incomes are made up more of capital gains which tumble when the stock market drops.

I’ll repeat what I said before:  the next time you hear someone saying a state should cut taxes to keep the wealthy from departing, keep in mind that in difficult economic times like these, most of them are moving down, not out.

Laffer’s Flawed Analysis on State Taxes

December 17, 2010 at 2:50 pm

If you plotted a chart showing that every single day, a rooster crows at dawn and then the sun comes up, would you have proven that the rooster caused the sunrise?  Of course not.  Unfortunately, some of the “analysis” purportedly showing that state taxes are bad for a state’s economy is similarly lacking in rigor — and can be terribly misleading.

David J. Shakow, professor emeritus at the University of Pennsylvania Law School, took a close look at one such study, which Arthur Laffer presented in the Wall Street Journal in October.  He found that Laffer not only made the rookie mistake of confounding correlation and causation but relied in part on questionable data.

Laffer, of course, is an icon of anti-tax economics.  Best known for the widely discredited “Laffer Curve” (which claimed that cutting taxes would increase revenue), he is frequently invoked by anti-government elected officials to justify policies that undermine the ability of states and localities to pay for services.

Laffer’s study argued that creating a state income tax has “devastating” consequences for a state’s economy.  He claimed, for instance, that in each of the 11 states that imposed the tax in the past 50 years, personal income per capita is lower now, relative to the U.S. average, than it was in the year before the tax began.

Yet, as Shakow explains, the income data Laffer used for the “before” part of this comparison — the year prior to enactment of the tax — are “not consistent with the data from the most likely public source of this data, the Bureau of Economic Analysis.”  Laffer did use BEA data for the “after” part of the comparison (and everywhere else in his study).  In short, his study isn’t the apples-to-apples comparison it claims to be.

When Shakow did a true apples-to-apples comparison using BEA data throughout, he found that seven of the 11 tax-imposing states had increases in per capita income relative to the U.S. average.  As for the four remaining states (Ohio, Illinois, Michigan, and Indiana), “The economies of those Midwestern industrial states are in such serious trouble that it seems unlikely they would have done much better if they had not introduced an income tax,” he notes.

Even if Laffer were right about personal income dropping in states with income taxes, he provided no evidence that the income tax was the cause.

When Shakow examined another of Laffer’s claims — that the tax-imposing states subsequently had lower economic growth — he found it equally lacking in providing support for causation.  Laffer ignored the possibility that other economic factors, such as changes to the U.S. manufacturing sector that affected some states more than others, could be at play.

“[T]he issue of causation is much more complicated than Laffer suggests,” Shakow cautioned.  “The danger is that one slice of the data may be misleading if it is not considered thoughtfully.”

Flawed analyses like Laffer’s could make it harder for states to raise the revenues they need to help families hit by the recession and to make investments needed to promote long-term prosperity.  The recession has caused a collapse in state revenues like none before.  It’s too big a problem to solve by cutting services alone.  A balanced approach that includes revenues is needed to make sure states don’t cause themselves long-term economic harm.

Minnesota Governor’s Race a Victory for Straight Talk

December 10, 2010 at 12:20 pm

Minnesota’s too-close-to-call gubernatorial election was finally resolved this week in favor of Mark Dayton, who won by about 9,000 votes.  It marked a victory of candor over wishful thinking on how to address the state’s budget problems.

Like other states, Minnesota has been besieged by the national recession.  Dayton will have a budget hole of more than $6 billion to fill in the upcoming two-year budget cycle.

But unlike many other newly elected governors, who have promised to cut taxes even though their states have suffered the worst revenue collapse on record, Dayton didn’t try to sell voters on the notion that reducing taxes would magically increase revenues.

Dayton has promised plenty of spending cuts.  But he didn’t pretend that cuts alone could close the gap between shrunken revenues and growing needs in a way that preserves quality of life and prepares for a solid future.  Describing taxes as “the lubricant for the machinery of democracy,” Dayton has proposed:

  • increasing income taxes on incomes above $130,000 for single filers and $150,000 for couples;
  • increasing property taxes on residences over $1 million;
  • ending the “Snowbird” tax loophole , which allows Minnesota residents to live outside the state for six months and one day of the year and pay no personal income taxes in Minnesota;
  • taxing credit card companies that charge extremely high interest rates; and
  • making it harder for corporations to avoid paying taxes on income earned in Minnesota.

It’s an ambitious plan, and legislative approval is far from certain.  But opening the discussion with straight talk — instead of a no-tax pledge that might be politically gratifying in the short term but could cause deep harm in the long run — is a bracing change from the conventional wisdom.

Ballot Questions Will Have Big Impact on State Services

October 26, 2010 at 11:31 am

Most of the attention in this election season is going to candidates, but ballot questions in several states will greatly affect these states’ ability to maintain public services.  Some of the ballot measures would make it easier for states to balance their budgets without excessive cuts in areas like education and health care.  Others would make it much harder.

  • In California:Proposition 25 would begin to address the state’s perpetually gridlocked budget process by allowing the legislature to approve a budget by a simple majority vote.  The current two-thirds requirement has often enabled a small number of legislators to hold the budget captive.

    Proposition 26 would go in the opposite direction by extending the two-thirds requirement, which now applies to proposed tax increases as well as the budget, to cover proposed increases in fees and other charges.

    Proposition 24 would give the state additional revenue by eliminating three special tax breaks for corporations.

  • In Colorado, three ballot questions would restrict state and local governments’ flexibility to meet major needs:Proposition 101 would sharply reduce vehicle registration fees as well as telecommunications taxes and fees.

    Amendment 60 would eliminate all property tax increases that voters have approved since 1992 and cut property taxes in half over the next decade.

    Amendment 61 would prohibit all future state borrowing and require voter approval of local borrowing.

  • In Washington State:

    Initiative 1098
    would raise revenues for health care and education by establishing a state income tax for incomes above $400,000 for married households and above $200,000 for individual filers.

    Initiative 1107
    , in contrast, would repeal several sales tax increases the legislature approved in the recent session in order to avoid deeper cuts to services.

    Initiative 1053
    would require a two-thirds legislative vote (or voter approval) to raise taxes or fees in the future.  (Voters adopted a two-thirds requirement in 2007, but the legislature suspended it earlier this year to help it close the state’s budget gap through a combination of spending cuts and revenue measures.)
  • In Massachusetts:Question 3 would cut the state’s sales tax rate in half, to 3 percent from 6.25 percent.

These proposals reflect states’ ongoing debates over how to meet balanced-budget requirements when the longest, deepest national recession since the Great Depression has depressed revenues while increasing people’s need for services.  State tax revenues remain 13 percent below pre-recession levels.

If states cut spending deeper and deeper, they not only hurt families struggling to get by, but also slow the economy and fail to make investments in areas like education and infrastructure that will help them make the most of prosperity when it returns.  That’s why a balanced approach, which includes strengthening state tax systems to raise more revenue, is the better choice.

Proposed Sales Tax Cut Bad for Business, Massachusetts Business Group Says

September 29, 2010 at 5:08 pm

Many people equate a strong state “business climate” with lower taxes.  So it’s especially noteworthy that a major business group in Massachusetts has come out against a ballot measure to lower the state’s sales tax.

Associated Industries of Massachusetts (AIM), which represents over 6,500 employers in the state, recently issued a strongly worded statement against a proposal to cut the state sales tax rate by more than half, to 3 percent from the current 6.25 percent.  It said in part:

Why isn’t the business community supporting a measure that would lower taxes on the products it buys and sells?  The answer is simple — Question 3 is an extreme measure that would irreparably harm the Massachusetts economy by doubling the projected state budget deficit and threatening services such as education and public safety upon which employers rely to run their businesses.

“No organization has worked harder than AIM to create rational tax policy that supports job creation and economic growth,” AIM continued.  “But no one knows better than employers the dangers that scattershot, across-the-board budget reductions pose to the operational viability of an organization.”

AIM estimates that cutting Massachusetts’ sales tax to 3 percent would force the state to lay off large numbers of teachers, police, firefighters, and other municipal employees, as well as to raise tuition and reduce course offerings for the 270,000 students at the state’s public colleges and universities — “the same students who will fuel the Massachusetts economy for the next generation.”

For more on the Massachusetts sales tax, check out this primer from the Massachusetts Budget and Policy Center.