Some years ago — not long after the debt crisis in Greece – I took a cruise around the Greek Isles. As we drove past rows of villas and yachts outside of Athens, our tour guide made this snarky comment: according to the country’s tax rolls, there was only one millionaire in all of Greece. I never checked out whether this was in fact true, but we tourists got the point. The billionaires and multi-millionaires living under the Aegean skies all managed to find ways to hide their wealth from taxes.
Fast forward to Pres. Biden’s latest scheme to fund his multi-trillion-dollar social spending plan. After scrapping the idea to tax the wealth of America’s 700 plus billionaires (probably unworkable and potentially unconstitutional), Biden instead is taking aim at those who have incomes of $10 million or more.
The new surtax would place a 5 percent levy on incomes above $10 million and an additional 3 percent on incomes above $25 million, on top of the top tax rate, which is currently 37 percent. According to the White House, about 0.02 percent of Americans would be affected. The millionaires’ surtax is expected to raise $230 billion in revenue. But will it?
“It’s just economics,” Arthur Laffer once told John Stossel. “People don’t work to pay taxes. People work to get what they can after tax. They’ll change where they earn their income. They’ll change how they earn their income. They’ll change how much they earn when they receive the income. They’ll change all of those things to minimize taxes.” Dr. Laffer added, “We can see it in the statistics. In 1960, federal revenues were 18.6 percent of total output. Over the next 50 years, that percentage has rarely exceeded 20 percent or fallen below 17 percent.” As Laffer points out, people – especially multi-millionaires — adjust their activities to their tax burden.
Take California. The state is 49th in individual income taxes and 45th in sales taxes. No state has a higher personal income tax rate at 13.3 percent than California. PRI’s recently released report, “California Migrating” by PRI fellows Wayne Winegarden and Kerry Jackson, shows that there’s been a steady increase of net outmigration of upper income earners (incomes over $200,000) since 2012, culminating with more than 8,000 leaving in 2018 – the latest data available. While these upper income taxpayers don’t have the high profiles (or the multi-million dollar incomes) of Calexiters like Elon Musk and Larry Ellison, this group is the backbone of California government financing.
“The loss of upper income taxpayers has an outsized impact on the income drain that is beginning to worsen,” wrote Winegarden and Jackson. In 2018 alone, more than $8 billion of adjusted gross income left the state.
Bottom line, to paraphrase Jack Kemp, if you tax people with high incomes, you’ll get fewer millionaires and billionaires.
Donald Trump, who wasn’t in office at the time, told Stossel that he agreed with Laffer — the rich leave when hit with higher taxes. “I know these people. . . . They’re international people. Whether they live here or live in a place like Switzerland doesn’t really matter to them.”
Or Greece for that matter.
Rowena Itchon is senior vice president of the Pacific Research Institute.