RALEIGH (Aug. 4, 2011) – Slashing state tax rates won’t affect residents’ decisions to stay in or leave North Carolina, but will cost the state resources it needs to create the highly-educated workforce, quality infrastructure, and safe communities that form the building blocks of job creation, according to a new report that busts a common myth advanced by proponents of cutting taxes.
Americans move from state to state for a variety of reasons, but tax levels rarely factor into such decisions, says a study released today by the Center on Budget and Policy Priorities. The report is being co-released by the NC Budget & Tax Center.
Arguments in favor of cutting taxes often include the unproven claim that a state’s tax rates are driving people to leave the state, particularly the most affluent.
“This claim is false. The effects of taxes on migration are, at most, small — so small that states that raise income taxes on the wealthiest households will see a substantial net gain in revenue.” said Robert Tannenwald, co-author of the report and senior fellow at the Center on Budget and Policy Priorities, a Washington, DC-based nonpartisan, nonprofit policy research organization that published the new report.
In North Carolina, the myth of wealthy people migrating to other states in response to tax hikes has been used to justify slashing tax rates on corporations and the rich. But the facts tell a far different story, say experts.
“In 2003, after North Carolina added a high-earners tax bracket, there was actually an increase in wealthy people moving to the state” said Alexandra Forter Sirota, Director of the NC Budget & Tax Center. “This new research confirms what years of experience and previous studies have told us.”
The report cites numerous examples of research debunking the migration myth and, through case studies, shows how misinformation about the impact of taxes on migration can influence policymakers and the media. Those that support the migration myth often wrongly assume a cause and effect relationship, promote irrelevant findings, and inaccurately measure migration, the report found.
“As we focus on growing our economy and creating new jobs, it’s now crystal clear that cutting taxes isn’t a magic solution and that a balanced approach that includes revenues instead of relying only on service cuts is better for our state,” said Sirota. “False claims shouldn’t deter our policymakers from making good choices for North Carolina.”
Very few Americans move between states, according to the report. The little interstate-migration that does occur is far more frequently due to job opportunities and housing prices than tax rates. Specifically, the report illustrates that housing costs may have a significantly larger impact on Americans’ finances than tax levels.
The Center’s full report can be found at: http://www.cbpp.org/cms/index.cfm?fa=view&id=3556