Proof The Laffer Curve Works

On Wednesday, CBN News reported that France was ending its super tax on millionaires.

The article reports:

Socialist President Francois Hollande proposed a tax of up to 75 percent on people earning above 1 million euros a year, equal to about $1.2 million a year in the United States

One critic of the super-tax said it makes France “Cuba without the sun.”

Many wealthy French citizens fled the country to avoid paying the super tax, including actor Gerard Depardieu, who became a Russian citizen. 

Because millionaires left the country or found tax shelters, the excessive tax did not generate nearly the amount of money that politicians predicted it would.

What is at play here is the Laffer Curve.

On April 15, 2012, Forbes Magazine posted a graph of the Laffer Curve:

Contrary to what you may have heard, people are not stupid. If it becomes obvious that the harder they work the more will be taken from them, they will not work as hard. There is a point where excessive taxation does not reap positive rewards. Congress  needs to remember this. It didn’t work in France, and it won’t work in America.

Voting With Your Feet

Quarter of Massachusetts

Image via Wikipedia

Last week the Daily Caller posted an article about the impact of tax policy on where people choose to live. A recent study released by the Center on Budget and Policy Priorities (CBPP), which leans left, concluded that weather has more on an impact of where people choose to live than tax policy. The article at the Daily Caller lists a few inconvenient facts that dispute that conclusion.

The article cites the fact that Hawaii and California have lost significant amounts of population over the last 20 years–3.6 million more people have moved out of California than have moved in, and 130,000 more people have moved out of Hawaii than have moved in. During that same time period, Florida gained 2.3 million net residents.

The article also reports:

If weather matters more than taxes, then why is Alaska performing so well compared to California and Hawaii? Alaska may have the worst climate in the country and California and Hawaii arguably have the best, but Alaska has out-performed both states on nearly every measure, according to Rich States, Poor States: ALEC-Laffer Economic Competitiveness Index, a report from the American Legislative Exchange Council.

There are also some interesting statistics on what happened in Maryland after the state passed a millionaires’ tax in 2008–there was a 33 percent decline in tax returns from millionaire households. The article also reports that Maryland lost $1 billion of its net tax base in 2008 because of out-migration.

The article concludes:

State elected officials obviously have little control over their states’ 10-day forecasts, but they do control their states’ tax climates. We know tax policy is not the only reason people are motivated to live, invest or grow a business in a state, but it plays a significant role. State lawmakers should keep this in mind as they shape public policy.

I will admit that when my husband retires, we will probably relocate. The tax policy of a state will be taken into consideration at that time. Tax policies in Massachusetts (and the cost of living in the state) make it a less than ideal place to retire. The climate doesn’t help either! 

Enhanced by Zemanta