Economics

Why it's Easy to Tax the Poor

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I don't care how well Florida's doing. I still think we should give it back to the Seminoles.

President Obama says his proposed "Buffett Rule" (tax-free corporate jets Tuesdays and Saturdays) is not a gimmick. That's a presidential way of saying that the Buffett Rule is a total gimmick

But here's some evidence of why taxing the rich – whatever its merits in terms of fairly and justly ensuring social justice and economic fairness in ways that are both socially fair and economically just – is not going to achieve the goal of raising sufficient revenues to for the American megastate. 

Above is the Tax Foundation's 2011 map of how much income states lose as a result of interstate migration. It tracks very closely with rates of taxation. The theory at work here is that if you tax income severely enough, high earners will find ways to conceal their income or take it elsewhere. The only real surprise is that California is only the country's second-biggest loser and Texas only the third-biggest gainer. 

Today, 24/7 Wall St. (whose near-daily this-and-that lists are always fascinating) has a study of the top 10 states that tax poor people the hardest. Methodology: 

24/7 Wall St. identified 10 states that tax two-parent families of four living at the poverty line at the highest rate, based on CBPP's report, "The Impact of State Income Taxes on Low-Income Families in 2011." All of these states also tax families with incomes that place them below the poverty line.

Using this measure, the ten meanies in ascending order of non-progressivity are: 

10. West Virginia
9. Ohio
8. Indiana
7. Montana
6. Iowa
5. Georgia
4. Oregon
3. Hawaii
2. Illinois
1. Alabama

The interesting thing is that this list does not correlate at all with the Tax Foundation's map of lost income. Five of the states above are gainers, five are losers. This is a politically toxic but true fact: Progressive taxation makes a state poorer than regressive taxation. 

Whenever I make the point that broadening the tax base is the only way you can actually raise revenues, I get a bunch of responses about how I'm a pennyboy for the rich, along with plenty of wildly inaccurate claims about how much of the national income* the 1 Percent earn. (It's about 20 percent, according to "Gurus of Inequality" Piketty and Saez.) Just to be clear, I am not arguing for broadening the base. I am not arguing for raising taxes on the poor, the rich, the middle class, the rentiers, the kulaks, or anybody else. I don't want anybody paying any income tax at all. I'm just saying that if your goal is to raise revenue, broadening the base is the only way to do it. 

* Corrected. Thanks to commenter #.