• Debunked: Myths Related to Tax Increases to Fund Infrastracture
  • June 13, 2017 | Authors: David D. Ebersole; David M. Kall; Michelle Rood
  • Law Firms: McDonald Hopkins LLC - Columbus Office; McDonald Hopkins LLC - Cleveland Office
  • A year ago, we described the American Sociological Review’s report, Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, which dispelled the myth that aggressive taxation of the wealthy will cause massive migration to states with more favorable tax rules. Instead, we wrote, “the report conclude[d] that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance. Indeed, the evidence for elite tax flight rests entirely on high migration rates into Florida, and not to any other low-tax state.”

    The topic remains one of interest, particularly in states struggling to find ways to fund essentials like infrastructure, but reluctant to pass new taxes. Connecticut, New York and Massachusetts are three such jurisdictions considering millionaire taxes, as we detailed last month. South Carolina has also just put new gas taxes on the books without focusing their new tax plans on high-income earners.

    In the Bay State, the Massachusetts Budget and Policy Center published its own study with a conclusion similar to that of the American Sociological Review. In The Evidence on Millionaire Migration and Taxes, the center acknowledged that “[w]hile the economic importance of high-quality transportation infrastructure and public education are widely recognized, some fear that raising taxes to fund such investments could lead to high-income taxpayers leaving the state—particularly if tax increases are focused heavily on these high-income households.”

    However, “[t]he vast majority do not make their residence decision based on state tax rates,” asserted the center. Noting that economists in all 50 states have “ample data” to examine the question, the center, citing, among other things, a Center on Budget and Policy Priorities 2014 analysis, found that “high-income people—like other people—overwhelmingly choose where to live based on work and business opportunities, family and social connections, and the draw of an agreeable climate.”

    Thus, a movement in Massachusetts to raise taxes on the rich is building steam. Raise Up Massachusetts, which describes itself as “a grassroots coalition of community organizations, religious groups, and labor unions committed to building an economy that works for all of us,” is a key proponent of this strategy to help pay for transportation and public education. It has been pursuing an amendment to the state’s constitution that would put the Fair Share Amendment on the 2018 ballot, with success:

    • In 2015, the coalition collected more than 157,000 signatures from Massachusetts voters to qualify the amendment for the 2018 ballot.
    • In 2016, the coalition won the first of two votes by the full state legislature that it needed to place the amendment on the ballot.

    In 2018, in order for the amendment to be enacted, the coalition will need to win one more vote in the state legislature, and then a vote of the people on the 2018 ballot.

    A related piece addressing gas tax increases corroborates the results that Massachusetts stakeholders are acting on, but for entirely different reasons. In Raising the Gas Tax Is No Longer Taboo In Many States, Governing.com pointed to a Transportation Investment Advocacy Center (TIAC) study showing that voting for a state gas tax increase does not hurt a lawmaker’s reelection chances. Pointing out that 21 states have increased fuel taxes since 2013, TIAC’s study found that “91 percent of more than 2,500 state legislators in 16 states who supported such legislation between 2013 and 2015, then ran for another term of office, [and] retained their seat in the next general election.”

    More interestingly, voters reelected 95 percent of Republican state legislators who supported a gas tax increase, which is the same reelection rate as for those who did not support one. Correspondingly, voters reelected 89 percent of Democrats who voted for a gas tax increase, compared to a reelection rate of 86 percent for those who did not support the same legislation.

    TIAC also looked at primary elections, to the same end: “In the 2016 primaries, 98 percent of the Republican and 98 percent of Democratic lawmakers who approved a gas tax increase and ran for their seat in a primary race moved on to the general election, compared to 97 percent of legislators who had voted “no” on the gas tax increase.”

    It is true that most lawmakers will not confess to opposing gas tax increases on fears of losing reelection. The Governing.com piece pointed to reasons that lawmakers have given in states that have recently passed such laws. For example, in Indiana, “[o]pponents of the deal came from both the right and the left. Democrats in the legislature wondered why Republicans wanted to raise taxes on consumers after years of cutting income taxes.”

    In Tennessee, Americans for Prosperity opposed a gas tax increase because it was a tax increase, even though the legislation also “reduced sales taxes on groceries and gave tax breaks to manufacturers,” with the net result being a decrease in state revenues. And in California, which we addressed this week, there is already an effort afoot to repeal the new law, SB-1 (to increase gas taxes), which just passed, by way of a ballot measure, along with a different effort to have one Democratic lawmaker removed from office for his support of SB-1.

    Nevertheless, analysts are now watching for the possibility of new infrastructure spending in Alaska, Louisiana, Oklahoma, Oregon, West Virginia and Wisconsin: “There is a potential for this to be a very active year,” Governing.com quoted the research director for the Institute on Taxation and Economic Policy as saying.