That's the fact, increasingly supported by evidence, that Congress must consider as it enters into what will likely be contentious negotiations over the Bush tax cuts.
President Barack Obama wants to raise taxes on “millionaires and billionaires,” by which he means those making over $250,000 a year. He's proposing a tax increase of 14 percent for these families and small businesses.
When Obama announced those tax hikes on Monday, he predicted the objections.
“We can already anticipate — we know what those who are opposed to letting the high-end tax cuts expire will say,” Obama said at the White House. “They'll say that we can't tax 'job creators.' And they'll try to explain how this would be bad for small businesses.”
It will be, but even more, it will be bad for the economy. And it won't even result in the revenues Democrats hope for, because the “wealthy” aren't stupid.
Just ask Maryland.
“A new report says wealthy Maryland residents may be moving out due to recent tax hikes — a finding that is sure to escalate the battle over taxing the American rich,” CNBC reports. “The study, by the anti-tax group Change Maryland, says that a net 31,000 residents left the state between 2007 and 2010, the tenure of a 'millionaire's tax' pushed through by Gov. Martin O'Malley. The tax, which expired in 2010, imposed a rate of 6.25 percent on incomes of more than $1 million a year.”
The tax hike resulted in a net loss of $1.7 billion in revenues.
Where are they going? To Texas — and to Florida, and other states without income taxes.
Some are even leaving the country. An estimated 1,800 people have renounced their U.S. citizenship last year.
Of course, liberal groups attempt to explain away this exodus, lest it dissuade politicians from raising taxes even more.
“Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states,” the left-leaning Center for Budget and Policy Priorities asserts. “The same claim also is used to justify new tax cuts.
Compelling evidence shows that this claim is false. The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.”
The flaw in this statement is clear — the CBPP is attempting to explain away the evidence by saying the evidence shows otherwise — without explaining how.
Economics is called the “dismal science,” but it's only a science at all in that it has theories that can and should be measured against history.
History is on Laffer's side.
Last year, Oregon hiked the state income tax on the richest 2 percent of its residents, in a typical “soak the rich” scheme to plug a budget hole, but it soon found that its revenue estimates were off by more than a third.
This is the lesson Congress must remember.