"Millionaire Taxes" Don't Work

LeBron James may have done us all a favor by pointing out the fallacy of "millionaire taxes":

Those who want to see better public policy in America owe a high five to LeBron James.

His highly publicized decision to sign with the Miami Heat brought forth a torrent of articles noting that the star basketball player stood to save a lot on state and local taxes by moving to Florida. Although conservative media noted the incentive early, eventually it hit the New York Times and other mainstream media outlets. It was a great teaching moment, in which the costs of a public policy – in this case high state and local taxes – could be clearly seen.

The interesting thing is that taxes – and broader public policy actions – affect such decisions every day.

If LeBron James were an auto plant, considering re-locating to Cleveland, New York City or Miami, it is very obvious that the higher taxes in Ohio and New York wouldn’t matter at all, at least not directly. Why? Because the governments in New York and Ohio would offer all kinds of “incentives” to equalize the tax burden with Florida and maybe even undercut Florida’s level of taxation.

But LeBron James is a high-profile, high-earning individual and, so far at least, the government has no way of aiming legal exceptions at one individual.

Now, of course, every day, there are plenty of individuals and small businesses deciding to locate in Florida and Texas and other low tax states. Other people or businesses may not have the freedom to live or locate anywhere but they compare the tax rates within a region. So they wind up in Virginia rather than D.C. or Maryland or Connecticut rather than New York.

I did a post back in February about Montgomery County, MD that showed that following a dramatic increases in "millionaire taxes" in that county the tax revenue dropped $4.6 billion dollars, 82% of which could be attributed to taxpayers with incomes of more than $1 million. 216 fewer people with $1 million dollar incomes filed taxes in 2008 than in 2007. Millionaire taxes simply motivate millionaires to move elsewhere. They never generate the revenue the libs promise because they fail to understand the concept of dynamism. Rich people can move.