Is Congress drinking Grover Norquist koolaid? (or will it fund IRS appropriately

from Angry Bear - Financial and Economic Commentary by Dan Crawford (Rdan) by Linda Beale

  Is Congress drinking Grover Norquist koolaid? (or will it fund IRS appropriately)


IRS Commissioner Doug Shulman testified before the House Appropriations Financial Services and General Government Subcommittee on President Obama’s proposed 2013 budget for the IRS. Shulman wants Congress to provide adequate funding to the IRS to support its enforcement function. The IRS has 5000 fewer employees this filing season than in 2011, and Shulman is worried about the impact of that decline in enforcement capability on compliance and collections. See Rubin, IRS Eliminated 5,000 Jobs in past year amid budget cuts, Bloomberg (Mar.21, 2012).

Now, those "starve-the-beast" types that drink the Grover Norquist koolaid are generally just eager to kill all government, and particularly government programs that help ordinary people, are concerned with the general public good, or help ensure the vitality of important government programs. 

• So it seems that the right has no trouble talking about a need to return the US's dismal health care system back to what it was before the little bit of progress accomplished in the Obama health reform legislation--they talk about eliminating government interference, but what they mean is letting health care profit centers, doctors, and insurers continue to rip off the American public that can least afford it with rentier profits.
• And the right has no trouble with unfunding the EPA or enacting foolish laws restricting the agency's ability to protect ordinary Americans' health, livelihood, and simple quality of life through much needed environmental regulations that protect, air, water, land, and natural resources for the future. Two examples--the right's push to "drill, baby, drill" with the claim that a trickle more of US oil will dent world prices (nope); and the right's push for the Keystone Pipeline no matter what the cost in aquifers or natural environments, even though the benefits are likely to be miniscule (VERY few jobs; no real impact on world energy prices).
• The right wants to privatize Medicare--that means that it would take a program that has proven it can deliver health care more affordably to all its participants than privately financed "competitive" health care, and make it into its poorly functioning cousin. One suspects that the goal here is to bury a government program that is working as intended, so that it will be even harder to move to the obvious solution for health care that the rest of the developed world recognized decades ago--Medicare for all, or a "single payer" system that has clout, provides portability and fairness.

And a component of the "starve-the-best; no-tax-increases-ever" koolaid package seems to be a desire to let the rich (the natural constituents of the right) get richer by continuing to be let off the hook on paying their fair share of taxes, while the overwhelming majority of Americans slip back into a much less hospitable context of just barely getting by. Taxes, of course, are one of the ways that is done, because it is so easy to hide the real purpose under a facade of caring about deficits (cut "entitlement" programs to save money) or growth (expand subdidies for the rich, to "grow" the economy).

So the IRS suffered from budget cuts that reduced its enforcement personnel. The result, of course, means fewer trained government officers to audit taxpayers and to investigate scandals like the wealthy millionaires and billionaires hiding their wealth overseas to avoid paying their fair share of taxes. And the danger is that criminal and civil tax evasion will be missed, because there are so few audits (only 1% audited annually) or that even compliant taxpayers will start to take their chances with the audit lottery once they realized that the IRS is part of the beast that the right is starving to death.

So Shulman is worried, he says, that budget cuts will erode voluntary compliance. He wants $12.8 billion for the IRS for the new fiscal year, an 8% increase. Rubin, IRS Eliminated 5,000 Jobs in past year amid budget cuts, Bloomberg (Mar.21, 2012).

He should get it. Every dollar spent on enforcement brings in multiples of revenues, so the cost-benefit analysis clearly favors adequately funding the IRS enforcement budget so that it can do its job. That helps in two ways--it produces revenues that reduce the deficit, and it reminds people that our voluntary compliance system is backed up by enforcement of the laws--they can't just cheat and play the audit lottery with high hopes of getting by.

And cutting the IRS does "long-term damage". Jose Serrano, Id.

So will Congress keep swallowing the Norquist Koolaid, or will it buckle down and make decisions that support the wellbeing of our nation and of our people? We will see.

crossposted with ataxingmatter

U.S. Tax Laws Change The Rules Of The Game

Ken Harvey & Pierre Noel - Forbes

Most advanced economies have tax evasion problems just as significant as those in the U.S., and it may be only a matter of time before other major countries begin to adopt similar legislation for offshore compliance regimes.

In March 2010, U.S. President Barack Obama and Congress enacted a game-changing piece of extraterritorial legislation--the Foreign Account Tax Compliance Act (FATCA)--as part of increasing efforts to reduce offshore tax abuses by U.S. citizens and residents.

When Obama's pen added Sections 1471 through 1474 to the Internal Revenue Code, financial executives could be forgiven for ignoring yet another addition to America's enormous and arcane body of tax law. But it is more than that; FATCA is an extra-territorial regulatory regime that enlists non-U.S. "financial institutions" in the tax collection efforts of the U.S. government.

Article Controls

Perhaps not coincidentally, when spoken, FATCA sounds a lot like "fat cat", a word President Obama used to describe wealthy U.S. persons who were illegally avoiding their tax obligations. It all began with the revelations of the "Swiss Banking Scandal" where it was revealed that, allegedly, many wealthy Americans were stashing funds in unreported and therefore tax-evading accounts offshore in places like Switzerland, the Cayman Islands, Singapore and Hong Kong. The use of "secret" offshore bank accounts was surprisingly common. As details of the scandal emerged, financial services practitioners were astounded at the scope of the tax evasion that was apparently occurring. 

The U.S. public, engaged at the time in a rancorous debate of its own regarding the wealthy and taxes, were not amused. Congress and the President swiftly concluded that the current U.S. tax regime--which relies on self reporting of income and assets--was not sufficient to deter "fat cats" with the resources to hire helpful foreign bankers to invest their funds in secret offshore accounts. Something else was needed. The diabolical genius of FATCA is that it more-or-less forcibly enlists those very same foreign bankers in collecting the information the U.S. government needs to find all that money.

Essentially, a "financial institution" must sign a contract with the U.S. Internal Revenue Service (IRS) to identify any U.S. account holders and report them and their accounts to the IRS. In this context, a U.S. account holder is any U.S. citizen, resident, or a non-financial company with meaningful U.S. ownership. The institution must impose a 30% tax on payments or money transfers to any recalcitrant account holders who refuse to identify themselves, and to eventually close such accounts. 

It makes little difference if the institution in question has neither U.S. assets nor U.S. customers. Since any institution doing business in the U.S. will be required to comply, any institution doing business with any complying bank will need to comply as well, and so on. The definition of "financial institution" is also rather broad. Besides including the obvious suspects--banks--financial institutions include investment funds, insurance companies, pension funds, mutual funds, broker dealers, and private equity funds. Virtually anyone who handles or invests money for someone else is implicated.

Related Stories

• Why Obama's FATCA Law Is A Threat To Business Growth
• Stripping FATCA From Our Diet
• FATCA: Giving More Tools to the IRS
• FATCA: Giving More Tools to the IRS
• Please Sir, Can I Have Some More FATCA?

Organisations therefore need to consider the business implications of FATCA and of both the cost of compliance and of non-compliance. For foreign financial institutions, the most significant consideration is whether to comply with or attempt to avoid FATCA. Complying with FATCA may require revamping existing procedures such as KYC/Anti-Money Laundering (AML) and adjusting their underlying IT infrastructure. It means changing the way new customers are approved and documented. It also involves the daunting task of delivering the news to the existing customer base and asking them whether they are American citizens or residents and whether they will agree to have their personal details and account information communicated to U.S. tax authorities. 

Attempting to avoid FATCA means either reducing the exposure or limiting the impact. Reducing exposure requires ceasing doing business with U.S. citizens, residents or U.S. corporations’ altogether. This will not, however, eliminate the requirement that the organization document its policies and contract with the U.S. government to be audited in order to prove its compliance with these policies. 

Limiting the impact of FATCA may mean divesting any assets or operations in the U.S., and presumably, no longer being subject or having it’s customers subject to the 30% withholding tax. However, as long as the foreign financial organisation does business in U.S. dollars and has to transact with U.S. banks or with any international bank that is FATCA compliant, these correspondent banks may be instructed by the U.S. federal government to stop accepting business from institutions that are not FATCA compliant. In other words, non-compliance may not be possible for many institutions. 

Resolving the issues FATCA creates may be especially difficult in Asia, where attempting to obtain the necessary documentation is likely to be challenging--and annoying to customers. 

Despite the apparent extra-territorial overreach of the legislation, it seems unlikely that non-U.S. governments are going to make any serious attempt to intervene with the U.S. government to put an end to FATCA. Most advanced economies have tax evasion problems just as significant as those in the U.S., and it may be only a matter of time before other major countries begin to adopt FATCA-like offshore compliance regimes. To this end, the U.S. government and the OECD are already considering the development of future multi-national standards. 

FATCA may therefore lead to the end of banking secrecy as we know it, particularly if global reporting standards are eventually adopted. Financial executives should, accordingly, act quickly to identify the affected operational areas and determine the extent of potential FATCA compliance issues, as the law has significant implications across the business spectrum--for operations, IT, risk and tax.

Pierre Noel is Director Advisory, Head of FATCA services and Ken Harvey is a Partner in the International Corporate Tax Services Group at KPMG China.

Decade of Stimulus Yields Nothing but Debt: Caroline Baum

Decade of Stimulus Yields Nothing but Debt: Caroline Baum

When George W. Bush took up residence in the White House in January 2001, total U.S. debt stood at $5.95 trillion. Last week it was $14.3 trillion, with $2.4 trillion freshly authorized by Congress Tuesday.

Ten years and $8.35 trillion later, what do we have to show for this decade of deficit spending? A glut of unoccupied homes, unemployment exceeding 9 percent, a stalled economy and a huge mountain of debt. Real gross domestic product growth averaged 1.6 percent from the first quarter of 2001 through the second quarter of 2011.

It doesn’t sound like a very good trade-off. And now Keynesians are whining about discretionary spending cuts of $21 billion next year? That’s one-half of one percent. And it qualifies as a “cut” only in the fanciful world of government accounting.

The Budget Control Act of 2011 will save $917 billion over 10 years relative to the Congressional Budget Office’s baseline. It leaves the tough work to a bipartisan congressional committee of 12, to be appointed by the leadership in each house. If this supercommittee fails to agree on a minimum of $1.2 trillion of additional savings over 10 years, automatic spending cuts -- evenly divided between defense and nondefense -- will kick in.

Is there any reason to think the same folks who couldn’t agree on a grand bargain this past month will join hands and find commonality in the next three, with one month off for vacation?

Rosy Scenario

Even if the committee agrees on the prescribed savings by Nov. 23 and Congress enacts them by Dec. 23, as required, laws passed today aren’t binding on future congresses.

Throw in the fact that revenue and budget forecasts tend to be overly optimistic, and there’s even less reason to think Congress has put the U.S. on a sound fiscal path.

In a July 2011 working paper for the National Bureau of Economic Research, Harvard economist Jeffrey Frankel identified a pattern of over-optimism in official forecasts, a bias that gets bigger in outer years. (Who can forget the CBO’s 2001 estimate of a 10-year, $5.7 trillion budget surplus?) A fixed budget rule, such as the euro area’s Stability and Growth Pact with its mandated deficit-to-GDP ratios, only exacerbates the tendency.

“Political leaders meet their target by adjusting their forecasts rather than by adjusting their policies,” Frankel writes.

First Installment

The deal hashed out in Washington at the eleventh hour this week does nothing to curb the unsustainable growth of entitlement spending -- on programs such as Medicare, Medicaid and Social Security. Medicare outlays have risen 9 percent a year for the last 30 years in a period of stable demographics, according to Steven Wieting, U.S. economist at Citigroup Inc. The automatic spending cuts outlined in the budget act would limit reductions in Medicare expenditures to no more than 2 percent a year.

By the end of 2012 or start of 2013, the federal government will be back at the trough with a request for additional borrowing authority. The debt will keep rising, and the ratio of publicly held debt to GDP will increase from 62 percent last year to as much as 90 percent in 2021, according to some private estimates, depending on what Congress does about the expiring tax cuts, the Medicare “doc fix” and the alternative minimum tax.

The CBO’s estimate of $2.1 trillion in savings over 10 years is well short of the $4 trillion Standard & Poor’s says is necessary to stabilize the debt and avoid a rating downgrade.

‘Architectural Change’

No matter. Some prominent Keynesians are advocating more spending now for an economy that is sputtering. Alas, there is little appetite in this country, and less in Congress, for more spending in light of the questionable results. A lost decade doesn’t seem like a good return on an $8.35 trillion investment. (For purists, only $6 trillion of the increase was in marketable debt, the kind of good old deficit spending Keynesians love.)

Maybe it’s time to try something new and different. In 2002 I wrote a column titled, “How About Some Tax Reform Along With Tax Relief?”

How about it? Get rid of the loopholes. Better yet, scrap the entire tax code, which would decimate the lobbying industry. Implement a flat tax or a national sales tax. The time has come for what former Treasury Secretary Paul O’Neill calls “architectural change.”

Can the Code

The current tax code is burdensome, inefficient and costly to administer. O’Neill says it costs the Treasury an estimated $800 billion annually, divided equally between administrative costs and uncollected revenue.

Eliminate the corporate and individual income tax, he says, and replace them with a value-added or consumption tax, with tax refundability for lower-income households.

“We should focus the tax system on raising revenue for the things we as a society need,” O’Neill says.

Of course, what society needs is a matter of opinion. Without strong economic growth, the options are more limited, the choices more difficult. Fiscal stimulus can have only a short-term impact. The government taxes or borrows from Peter to pay Paul, reflecting a temporary transfer of resources, nothing more.

What does the nation have to show for chronic short-term thinking and policies like these? Long-term problems and a mountain of debt.

#Do_it_now dossier: Petition against CVN

The "Christian Values Network" (CVN) is under fire. In the last week,
Microsoft, Macy's, Wells Fargo, Delta, and BBC America have stopped
using the charitable donation service. Why? Because CVN funnels money
to extreme anti-gay groups.

Here’s how CVN works: A customer makes a purchase and then uses CVN to
direct a company to donate to a "charity."

Some of the charities are legitimate, but others are just anti-gay
front organizations -- like Focus on the Family and the Family
Research Council (an organization formally classified as a "hate
group" by the Southern Poverty Law Center, widely recognized for
monitoring extremist activity).

Still, Apple continues to use CVN. That means that when people make
purchases from Apple or the iTunes Store through CVN, they can tell
Apple to give money to hate groups -- and Apple does.

That’s why student (and Mac user) Ben Crowther started a petition on
Change.org asking Apple to stop funding anti-gay hate groups through
CVN. Click here to sign Ben’s petition today:

http://www.change.org/petitions/apple-stop-raising-money-for-anti-gay-hate-groups?utm_medium=email&alert_id=YrIajXJcpj_pptUerWvhI&utm_source=action_alert

Beyond spreading misinformation about LGBT people, Focus on the Family
and the Family Research Council have actively lobbied Congress to
uphold the Defense of Marriage Act (DOMA), reinstate "Don't Ask, Don't
Tell," reject the Employment Non-Discrimination Act (ENDA), and repeal
the 2009 Hate Crimes Prevention Act -- also known as the Matthew
Shepard Act.

Microsoft ended its affiliation with CVN and its anti-gay allies after
a member of Change.org petitioned the software company. Another recent
successful campaign started on Change.org’s platform got TOMS Shoes to
explain its ties with Focus on the Family and denounce their anti-gay
agenda.

If people like you speak out, we can convince Apple to end its
relationship with CVN. Apple has supported LGBT rights in the past,
most prominently donating $100,000 to the campaign to defeat Prop 8.
And, when more than 158,000 people signed a Change.org petition asking
Apple to stop offering a "gay cure" iPhone app earlier this year,
Apple removed the app from the iTunes store.

Please show Apple that supporting anti-gay organizations is bad for
business -- and hold Focus on the Family and the Family Research
Council accountable -- by signing Ben Crowther’s petition today:

http://www.change.org/petitions/apple-stop-raising-money-for-anti-gay-hate-groups?utm_medium=email&alert_id=YrIajXJcpj_pptUerWvhI&utm_source=action_alert

Thanks for taking action,

- Eden and the Change.org team

US Tax Code; law.cornell.edu link

http://www.law.cornell.edu/uscode/

There ya be!  In all of its glory!!

Report: Offshore tax havens cost U.S. $100B - CBS News

Goldman Sachs is reportedly among the many offenders when it comes to large corporations sheltering their fortunes from the IRS in overseas tax havens.

 (Credit: Mario Tama/Getty Images)

Adding insult to injury on the day American taxpayers are due to file their returns, a new report by the U.S. Public Interest Research Group states that many of the biggest U.S. companies who took advantage of government bailouts or rely on government contracts regularly hide their money from the IRS in overseas tax havens.

Overall, the U.S. loses approximately $100 billion in tax revenues every year as corporations and individuals shelter their fortunes in foreign bank accounts.

In 2009, President Barack Obama launched a major initiative against overseas tax havens with new tax laws, new reporting requirements and an army of 800 new IRS agents.

"I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens," Mr. Obama said at the time, according to the Washington Post.

However, today's report by U.S. PIRG reveals that the president still has a long way to go.

Some of the report's key findings include:

• In 2010, making up for this lost revenue cost the average U.S. tax filer $434. That's enough money to feed a family of four for three weeks.
• The taxpayers who pick up the largest share of the tab live in Delaware and New Jersey. On average, tax filers in those states paid an additional $920 and $752, respectively.
• Some of America's biggest companies - including many that have taken advantage of government bailouts or rely on government contracts - use tax havens. As of 2008, 83 of the 100 largest publicly-traded U.S. corporations maintain revenues in offshore tax haven countries.
• Goldman Sachs, which reported more than $2 billion in profit in 2008, was able to use its 29 tax haven subsidiaries to reduce its federal tax bill to just $14 million. That means that Goldman Sachs' CEO Lloyd Blankfein, who made $42.9 million that year, earned more than three times the amount that the company paid in federal taxes.
• General Electric appears to have paid no federal income taxes in 2010, despite reporting profits in the United States of $5.1 billion. The biggest company in the country, GE has lobbied hard for tax breaks and loopholes in the federal tax code, and shifted many of its profits to tax havens to avoid paying U.S. taxes. GE employs nearly 1,000 people in its tax department to help exploit those loopholes, but has laid off one-fifth of its U.S.-based workers since 2002.

Click on the video player below to watch a recent "60 Minutes" report by Lesley Stahl on tax havens.

http://www.cbsnews.com/8301-503983_162-20054892-503983.html

SALLY AND FRANK DISCUSS TAXES

by Allen L Roland, Ph.D

Only a animated cartoon can do justice to the absurd reality of our current tax code where General Electric made 14 billion dollars profit and not only paid no taxes but got a 3 billion dollar refund: Allen L Roland

Click on this 3 minute video and enjoy.

http://www.campaignmoney.org/blog/2011/04/14/new-video-how-avoid-paying-taxes

Happy tax day, if you’re not outraged, you’re either GE top management or on life support.

And here are 9 things the financial elite don’t want you to know about taxes.

http://www.wweek.com/portland/article-17350-9_things_the_rich_dont_want_you_to_know_about_taxes.html

This coming Monday, April 18 is Tax Day ~ and that's the day when "we the people" will demand our country back from these corporations in events all across the country.

Allen L Roland

http://allenlrolandsweblog.blogspot.com/2011/04/sally-and-frank-discuss-taxes.html

About the Author: Allen L Roland is a Freelance Alternative Press Online columnist and psychotherapist.Allen is also available for comments, interviews, speaking engagements and private consultations. Dr. Roland is a practicing psychotherapist, author and lecturer who also shares a daily political and social commentary on his weblog and website www.allenroland.com . He also guest hosts a monthly national radio show TRUTHTALK on www.conscioustalk.net

http://www.peri.umass.edu/fileadmin/pdf/published_study/Brief_Migration_PERI_MA.pdf

C O N C L U S I O N
Evidence from surveys of migrating households, the
existing economic literature, and new analysis in this
paper all suggest that taxes do not play any notable
role in causing people to leave Massachusetts. The
most important factors in influencing household migration are economic
 and family-related reasons. If anything, higher state income taxes decrease the numbers
of people leaving a state. Taxes do appear to influence
the choice of which state to live in once a person has
decided to move, but the impact is modest. If Massachusetts uses
the revenues from higher taxes to create
jobs, reduce unemployment, and reduce property
crime, the small negative impacts from taxes can be
easily overcome.

Paul Jay discusses higher taxes and migration with Cristobal Young

Transcript PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Washington. As protesters marched in support of public sector workers in Madison, Wisconsin, in their battle against the governor, one of the things we saw on signs was "tax the rich". Well, some people say that if you tax the rich at the state level, in other words a state income tax or a state estate tax, the rich will simply leave the state. Or will they? Well, research suggests perhaps they won't. Now joining us from Stanford University in California to discuss this is Cristobal Young, who's done some work on this. Thanks for joining us, Cristobal. CRISTOBAL YOUNG: Hi, Paul. JAY: So what does your research show? If you have higher income taxes or estate taxes, do the rich just bolt? YOUNG: Sure. So [incompr.] specifically at New Jersey, and we brought in the complete income tax data from the state of New Jersey, which offered, essentially, a complete census of very high income earners and millionaires in the state, and we looked at a very large millionaire surtax that was imposed on New Jersey in 2004. And we found that the rates [incompr.] migration essentially did not change at all for the overall group of people who were affected by the tax, which is to say, millionaires. At the same time, there are some groups who do appear to be more sensitive to the tax, people who live entirely off capital market earnings, investments, essentially. So people who are not tied to employers in this state of New Jersey were a little bit more inclined to leave. And also retired people who were earning very high incomes were also more inclined to leave. Still, we found that the taxes raising about $1 billion a year in net revenue was essentially zero outflow in terms of tax flight. So very little tax revenues were leaving the state. JAY: Now, the tax was, if I--it was about 2.9 percent, was it? YOUNG: It was an additional 2.6 percent marginal tax on people earning over $500,000 a year. So this was actually the biggest millionaire tax that has ever been passed in the US, at least in the current round of experimenting with millionaire taxes. And about eight states have followed New Jersey's lead. JAY: Now, do you get any sense--I suppose there's some line. If you taxed everything they had, they would leave. So somewhere in there there's a line you can't cross before the migration gets too serious. Do you get any sense what that line is? YOUNG: Yeah, no. I mean, we can't see it in our data. So it's true. I mean, we are talking about even people earning--people who are earning over $1 million a year, they're paying close to--they're paying about an extra 2.5 percentage points of their income. So it's not a large kick if you think about the costs of migration, in terms of you have to be able to sell your house, you're going to buy a new one. You're going to separate from your friends and family. You're going to separate from your business connections and your neighborhood. JAY: Kids going to school would be a big one, I guess, if you have kids in the mix. YOUNG: For schools. Exactly. So especially for people who have kids, moving, taking their kids out of school and moving to a new state and starting over is a very difficult thing to do. So--. JAY: And the truth is, the richer you get, in some ways the less meaningful this tax is anyway. Like, even if you do pay hundreds of thousands of dollars more tax, if you're a multimillionaire or billionaire, that's actually not that much money. YOUNG: Yeah, that's right. And so what this tax does is, for people earning about $1 million a year, they're paying about an extra $20,000 a year. So it is not--it is not a big chunk of their income. And whether or not it's going to force them to really--going to really lead them to, you know, uproot the lives of their families and really make new connections elsewhere--. JAY: Do you get any sense, are any states planning to go more than the 2.6 percent? Like, I'll ask again: what do you think the limit here is?

YOUNG: It's really hard to say what the limit is. I mean, if you increased the tax rate by 10 percent, would you see no tax flight? I mean, I think you would, I think you would start to see. So I would be--personally, I would be cautious about the ceiling. What our research shows in New Jersey is that the largest of the millionaire taxes that are sort of on the table right now have not had any impact in terms of tax flight. So I think in terms of the kinds of policies that we're talking about, a modest surcharge on millionaires is not going to have any migration effect. Now, during the recession, one of the things that's happened is that migration rates across states have plummeted back to levels that we haven't seen since the 1950s. So migration rates across-state are the lowest level they've been in 60 years. It's because during recessions it's very hard to move. There aren't jobs that are drawing people away. And particularly, if you're going to move, you have to be able to sell your house. If you're going to sell your house during a recession, during a housing market retrenchment, it's not the best idea. So during recessions, temporary surtaxes, I think, basically do an end-run around the risk of migration. And if you have it as a temporary tax, then you could reevaluate this as the economy improves, whether you need this additional revenue and whether or not you become worried as the economy improves that people might be able to start selling their homes from migrating. So I really think that a temporary surtax during a recession is probably a safe bet in terms of having any negative byproducts in terms of migration.

JAY: We've talked about what happens with wealthy people when their income tax gets raised. Within certain limits, the evidence is they don't move. What happens with the general population within a state if income taxes go up? Do you see that kind of flight? Now joining us to talk about that is Jeffrey Thompson. He's coming to us from the PERI institute of Amherst, Massachusetts. Thanks for joining us, Jeff.

JEFFREY THOMPSON: Glad to be here.

JAY: So what does the research say? If states increase income taxes and/or estate taxes, what actually happens? What's the research?

THOMPSON: The research on migration behavior suggests that taxes play very little role in where people decide to live. And that would come as a huge shock to politicians, but for researchers in this field it's not at all surprising. It's a finding that's been verified in a number of very good academic studies, and it's a finding that's supported in my recent paper that I'm putting out as well.

JAY: Well, talk about some specific research that you refer to. What did you find?

THOMPSON: Sure. My work is looking at income taxes overall, so I'm not isolating specifically the rich, but they're included in the lot. What we show is that when states increase their income tax, for example, to raise revenue to finance public services, that there's very little impact on people's migration decisions. But if you imagine that the state, say, raises its income tax, raises a lot of revenue from doing it, and then holds a big bonfire and burns the money, sure enough, that will make it so that some people opt to leave your state and fewer people will decide to move to your state. For example, a one-point increase in your income tax, depending on what state you're looking at--in Massachesetts it would mean that a couple of thousand people leave your state or decide not to come to your state.

JAY: And what's the net of that in terms of how much income you pick up versus how many people leave?

THOMPSON: One-point increase in Massachusetts' income tax rate would bring in about $2 billion, and the combined effect on just looking at the tax side, you're looking at about 1,800 fewer people, on net, coming to or staying in your state.

JAY: And if you figure out how much money that 1,800's worth, what do you come up with?

THOMPSON: Well, in terms of--well, the tax would bring in $2 billion. And if you just burned it, like I'm saying, then you would expect 1,800 fewer people to be in your state. But the point is that no state ever burns $2 billion. What they do is they decide to spend it. And when they spend it on services, they end up hiring people. And what the research shows again and again is the factors that motivate people's migration decisions are jobs and family decisions and housing decisions. So if Massachusetts, instead of burning the $2 billion, decides to hire people to provide services, then the employment effects of that taxation decision swamp the deterrent effect. So people are going to come to Massachusetts for the jobs. When there are more jobs in the state, fewer people will leave.

JAY: Right. So talk about how you came to this conclusion. Like, what research, what states did you look at? What models? How do you come to this conclusion?

THOMPSON: Sure. We're using migration data from the Internal Revenue Service. They have data tracking the flow of people leaving states every year for 20 years. So we know the number of people leaving New Hampshire and going to North Carolina. So the whole country. And what we've done is we've done a statistical analysis to explore the relationships between peoples' migration decisions and different economic factors and different fiscal factors--state spending, you know, crime rates in the state, income tax rate. And so the relationships that we identify in that statistical analysis confirm mostly everything that's already been said in this literature, which is it's employment that matters; [in] people's migration decisions, taxes play very little role.

JAY: So what the research suggests, then, within certain limits--and I guess those limits are still to be explored, but it's not just a truism that if taxes go up, people leave, and it's not a truism that if you tax the wealthy within a state, the wealthy leave. So maybe it is time for some experiments on this. Thanks for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.