article last week in The New York Times, "Greek Wealth Is
Everywhere, Just Not on Tax Forms," described a wealthy Athens suburb
where just 324 households admitted on tax forms that they own a swimming pool. Curious,
tax officials obtained satellite imagery of the area and counted 16,974 pools.
Notwithstanding the claims of many tax-friendly Lansing politicians and their
government employee union patrons, it appears that, at least in Athens, taxation
really does matter. Why else would so many people hide their assets?
matter in other places too. While the academic literature on the subject is
mixed — academic literature on most subjects frequently is — reason, logic,
history, experience, theory and the preponderance of empirical evidence
indicate that even the smallest tax changes really do affect people's behavior.
This includes the level of taxation itself. History is full of examples.
England and Scotland, one can still see the remnants of the "window tax" from
the 18th century, which led homeowners to brick up their windows to
avoid paying the tax. This was horribly inefficient, as it led people to work by
candlelight during daylight hours.
ahead, a 10 percent luxury tax imposed in 1991 by the first Bush Administration
on luxury items including yachts and high-end autos cost more than it generated
the first year, as social welfare costs from increased unemployment in the
affected industries outweighed the revenue generated by the tax. (Yacht sales
reportedly dropped 77 percent.) In that instance, Congress had the good sense to
repeal the destructive levy.
more systematic evidence supports these anecdotal
examples. Martin Feldstein's well-known 1998 paper "Can State Taxes
Redistribute Income?" is one example. Another, titled "Do Tax Havens
looked at low-tax countries and found that they are magnets for foreign
investment and enjoy superior growth rates.
Mackinac Center's own Michigan-specific research has found a link between personal taxes and outbound migration. For every 10
percent increase in Michigan's personal taxes, an additional 4,900 people flee
the state every year thereafter. And this is a conservative estimate. In 2007,
Michigan's personal income tax rate was hiked 11.5 percent, pushing people and
their wealth from our state. Another tax hike would only compound this outbound
is on the cusp of another budget and tax debate. Expect to hear more
self-serving "taxes don't matter" rhetoric in the coming months from government
spending beneficiaries loath to give up their perks and privileges, regardless
of this state's economic basket-case status.
H/T - George Nastas III
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.