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.

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More About Jon Shure

Jon Shure

Jon Shure is Deputy Director of the State Fiscal Project.

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