How do high taxes impact behaviour of the wealthy, the brainy?
High taxes drive out the wealthy and the brainiest workers.
By now most of us fully believe that statement about the impact of high taxes. First off, it makes sense that people paying more taxes would want to live in lower taxed places.
Second, that statement has been drummed into our skulls for the last 70 years ever since Prime Minister John Diefenbaker killed the Avro Aero plane — the best fighter jet ever developed — and pushed thousands of skilled people south of the border to find work.
Every time higher taxes are threatened the argument — high taxes drive out the wealthy and the brainiest — is trotted out by lobby groups from chambers of commerce to the Canadian Taxpayers’ Federation to the Canadian Federation of Independent Business.
On these occasions, the lobbying organizations point out they know of actual cases where wealthy people have left, or are leaving, Canada over high taxes. Rarely do they ever name any of these folks. So what is the real truth about the impact of high taxes on wealthy and smart people moving way?
A recent item by Mauldin Economics of Arizona sheds some impartial light on this issue.
It is true: states with the highest taxes have declining millionaire populations while low taxed states have growing populations. But the proof becomes cloudy. Why have so many wealthy people stayed in highly-taxed states like New York and California? Why has there not been a mass exodus of millionaires?
Quoting the 2017 book Myth of Millionaire Tax Flight, the article says over 13 years only 2.5 per cent of millionaires moved to new states.
The moves weren’t all to states with lower taxes. Millionaires are usually older and have strong roots in the community: family, friends, business connections. They like life that way in that place.
The author Cristobal Young discovered younger wealthy people are four times as likely to move as are older millionaires. Taxes are not why they move. They move primarily for job and education opportunities — for life adventures.
The assertion that high taxes drive out the wealthiest and the brainiest workers doesn’t really stand up so well with the facts. Surveys and studies have found that job satisfaction rates higher than pay for most people.
This information is based on the U.S. experience. What about Canada? Is there a difference? There is no reason to believe Canadians are any different.
Note even with 70 years of brain drain worries since Diefenbaker killed the Avro Aero plane project, Canada has a strong aviation sector. Even with all the so-called losses of brains and wealth over seven decades Canada still grows and prospers. The point: we should be more questioning and more critical when others around us argue to keep their sacred cows from milking.