Tim Squirrell is a PhD candidate in Science and Technology Studies at the University of Edinburgh. His research focusses on construction and negotiation of authority and expertise on the internet, with a focus on fitness and nutrition communities.

Does raising taxes drive out the rich?

Does raising taxes drive out the rich? The Economist seems to think so, as this is the crux of their argument against Jeremy Corbyn's solutions to the crises of austerity. They say that "the rich will leave the country and corporations will pass taxes on to citizens". I'm agnostic towards the second proposition, but I wanted to explore the first because it's an argument so commonly deployed both in general discourse and in debates.

The WSJ suggests that the answer is "no". Wealthy people tend to express a desire to leave the country, and this is usually spun by the right-wing press and establishment as driven by high taxation, but their actual intentions and actions give the lie to this. Of the wealthy who want to leave the UK, a large proportion want to go (or at least did in 2012 when this article was published) to France, where taxes are higher and service provisions better. Taxes seem to be a relatively minor part of the decision-making calculus. This seems reasonable. Wealthy people, whilst more mobile than the poorest, are still not perfectly mobile: they have communities and children and schools and houses and all of these things mean that leaving isn't just a snap decision caused by a marginal tax rise. This study doesn't reflect the desires of the super-wealthy, though - those who are hyper-mobile and more likely to be more tax-sensitive.

An article from a think-tank in North Carolina suggests that the answer is, again, broadly "no". Millionaires, particularly business-owning millionaires, failed to move state when New Jersey raised the marginal tax rate on earnings over $500k. The only people who really were affected were millionaire retirees, who are less of a concern because of their lack of job-creating capacity and economic clout. In fact, rich people seemed to actually migrate to places with higher taxes, often because the service provisions are better, which is something they can take advantage of particularly if they own businesses. 

Forbes suggests that millionaires in the US are highly unlikely to move from one state to another for any reason. About 2.4% of >$1m/year earners move in any given year, and this rises to 2.7% of those earning >$5m. This corroborates the analysis above: lower income people are more likely to move, as are single people, because they can afford to be more mobile or because they need to move for work. Richer people tend to have more obligations, making them less mobile than the middle earners.

The BBC writes that the primary impact of increased marginal tax rates is a psychological one, rather than a financial one: individuals who are hit by the taxes are more likely to engage in clever accounting so that they pay more in, say, capital gains than they do in income tax, or so that they are paid more in bonuses than in salary. Similarly, Full Fact says that the cut in the 50p rate of UK income tax to 45p did not result, as was claimed, in an increase in income tax receipts; rather, it cost about £360m per year, in line with the government's expectations.

It seems that the answer to the question, "does raising taxes drive away the rich?" is for the most part "no". There might be exceptions for the super rich, though they are likely to find ways around taxation regardless, and it's unclear that we should formulate economic policy in a way that appeals to them as much as possible. The primary concern should probably be about whether tax rises drive away people and companies that create jobs, and with respect to raising personal tax rates the answer appears to be that it does not.

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