Tax Roundup, 9/5/2013: Fleeing the state edition. And other good tax policy moves.

September 5th, 2013 by Joe Kristan

20130905-1Cara Griffith, Income Migration: What Does It Really Mean for States? (Tax Analysts Blog; my emphasis):

Still, the data seems to strongly suggest that tax policy (more than warm temperatures) does in fact drive income migration. But that statement is not particularly shocking. In addition to the interstate income migration, U.S. citizens have expatriated to avoid federal tax consequences and even abroad, there has been migration among European nations to avoid high tax countries (remember Gerard Depardieu?).

The question is what does this mean? Will we one day end up with the majority of millionaires in a handful of low tax states while those making more meager incomes remain in high tax states? No. It’s highly unlikely. The decision of where to locate is not done in a vacuum. It is the result of many factors, income tax burden being only one of those factors. Employment, family connections, and quality of public services (in particular education and health care) play roles as well. Migration solely because of tax policy is uncommon and likely restricted to the very rich.

But this does not excuse bad tax policy. Good state tax policy dictates a stable system with a broad base and low rates. High income tax rates can cause a small, but wealthy portion of the population to leave and can directly affect small businesses. We have the federal government to worry about income redistribution and business regulation. States should focus on tax systems that will create competitive business climates. That, in the end, will encourage residents to stay put.    

A broad base and low rates equal good tax policy.  Iowa takes the opposite approach, with some of the highest rates and a zillion tax breaks for the well-connected and well-lobbied.  There is another way.

 

Speaking of tax migration,  Americans turn in passports as new tax law hits (CNN Money).  Sometimes the jaywalkers don’t want to be shot.

 

 

Russ Roberts, New York City tax economics (Cafe Hayek):

The top 1% made 34% of the income but paid 43% of the taxes… You’ll often hear how the rich have used their political power to lower their tax burden. Yes, some of the rich have a disproportionate share of political power. But their power must be pretty limited if they still pay 43% of the income taxes collected in New York City.

And really, considering the cost of living there, the next 49% have pretty healthy incomes too.  But the 1% can leave.

 

David Brunori, Feeling Petty About Guns? Tax Them (Tax Analysts Blog)

Davis, Pascrell and their gun control buddies obviously don’t understand some basic concepts of tax policy. They’re proposing a special tax, an excise, on a particular product. Everyone who has ever studied tax policy will tell you that those taxes are warranted only in limited circumstances. The idea is that an excise is appropriate when it’s used to compensate society for the external costs of using a product. In basic tax school, we call those costs externalities. Say I live in rural Virginia, far from any high-crime area. I own a .22 rifle because I like to shoot empty beer cans. And maybe I own a .45 automatic in the unlikely event of a home invasion. I’ve never committed a crime. And let’s stipulate that I’ll never commit a crime because most gun owners never will. And I don’t hunt because I’m a vegetarian and don’t like to shoot critters.

We should impose an excise tax on bad tax policy.  Now there are some externalities.

 

TaxGrrrl, Back To School: Making Sense Of Scholarships, Grants & Fellowships 

Kay Bell, Detroit woman’s good deed rewarded with $5,300 tax bill. Diligent, comprehensive record keeping saves the day

How “joint” is that joint return?  More on Equitable Relief: Review Standards (Leslie Book, Procedurally Taxing). 

TaxProf, The IRS Scandal, Day 119

News you can use.  Kids Don’t Say They Want to Grow Up to Be CPAs Because Kids are Dumb.  (Going Concern).  

 

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