Tax mythology shouldn’t guide policy
Tax increases don’t cause people to flee the state. Progressive taxes don’t damage the economy. Cutting state taxes doesn’t boost the economy and generate more tax revenue.
These are the conclusions of a report just released by the Center on Budget and Policy Priorities in Washington, D.C., that debunks the anti-tax arguments made by the American Legislative Exchange Council (ALEC). ALEC has been making these arguments to support its “reform” proposals to cut taxes for the rich and shift the cost of public services onto low- and moderate-income residents.
Vermont hasn’t seen any serious proposals to do away with the state income tax—at least not yet. But ALEC’s arguments have worked their way into the debates in Vermont about the pros and cons of raising taxes.
Like Vermont’s current governor and his predecessor, ALEC claims that raising taxes will cause wealthy residents to flee. Citing studies, the Center says this isn’t reality:
“Evidence says otherwise; it shows that taxes have a negligible impact on interstate migration. The large majority of people live their entire lives in the state where they were born and, among those who move, the main reasons are not taxes but job prospects, housing costs, family considerations, and climate. A growing body of research by economists and demographers that considers the wide range of factors shows consistently that taxes have little impact on migration.”
An item in Friday’s New York Times (Feb. 15), “The Myth of the Rich who Flee from Taxes” backs up the Center’s analysis and quotes the Center’s director of state fiscal studies. “Many people want this [tax flight] to be true as a way to discourage tax increases,” Jon Shure told the Times. “The rich are always trying to find ways to make the middle class make their arguments for them.”
ALEC has also advocated for cutting the Earned Income Tax Credit (EITC), as has been recently proposed by the Shumlin administration, which would effectively increase the portion of the income tax that comes from the poorest working Vermonters.
The Center’s report focuses on ALEC’s attempts to reshape state fiscal policies and explains how they make “exaggerated claims, present misleading data, commit basic statistical errors, and do not control for other factors known to affect economic growth.” ALEC also has been the subject of investigations by the Center on Media and Democracy and other organizations, which can be found at the website ALEC Exposed.
The Center’s report doesn’t just burst ALEC’s bubbles, however. It acknowledges that states need to improve their tax and budget systems and recommends changes that can help states address the needs of their citizens by modernizing tax codes; maintaining education, health care, and other public services; and reforming the state budget process.
Nevertheless, the fact that ALEC’s messaging based on shoddy analysis is filtering into Vermont policy making should be a concern to citizens. Vermonters would be better served by policies that are grounded in reality.
