The Wall Street Journal highlights the effect of marginal tax rates on behavior this morning by using data concerning an extremely small sliver of the population in any country but one that is highly desirable for economic growth: top scientists.
It seems that even this elite group doesn't like living in countries in which the government takes too big a slice of their income. The editorial points to two studies that show this:
One study, by Ufuk Akcigit, Salomé Baslandze and Stefanie Stantcheva, looked at the international migration patterns of highly successful inventors since 1977. The authors found that “top 1% inventors”—those with the most valuable patents—“are significantly affected by top tax rates when choosing where to locate.” Specifically, countries enjoy a “26% increase in foreign superstar top 1% inventors” with each “10 percentage points decrease in top tax rates.”
The authors, in hilariously dry academic fashion, dare to note that these “migratory responses to tax policy might represent a cost to tax progressivity.” Imagine trying to attract the top 1% of earners instead of driving them away.
. . .
In another study, Enrico Moretti and Daniel Wilson examine star scientists “at or above the 95th percentile in number of patents over the past ten years” to find that state taxes have “a significant effect” on the geographical location of these innovators. In short, they found, “relative taxes matter.”
All of this suggests that marginal tax rates improve an economy, a consideration in casting votes in November's presidential election. Another editorial in the Wall Street Journal this morning proposes that the GOP House proposals on economic reform make a lot of sense:
Speaker Paul Ryan’s House colleagues have rolled out proposals to reform health care and welfare, make the financial system more resilient, and revive Congressional authority against the administrative state. The overriding goal is to gain an electoral mandate to implement an agenda in 2017 to increase economic growth and lift wages from their Obama-era trough.
. . .
We can break the news that analysts at the Tax Foundation have inspected the details and will report this week that the House reform would raise American GDP by 9.1% in the long run, lift wages by 7.7% and add some 1.7 million jobs.
These are estimates and depend on all other things being equal. But the Tax Foundation’s model is well regarded and reflects what economists believe is possible by reducing tax barriers on work and investment.
The Tax Foundation scores the revenue impact of tax bills on a static and dynamic basis, the latter including the effect on economic growth. Its analysts estimated that Mr. Trump’s tax reform would lose $10 trillion in revenue over 10 years even on a dynamic basis—in part because it didn’t specify reductions in tax loopholes.
So it’s notable that the foundation scores the House reform as reducing federal revenue by only $2.4 trillion over 10 years and a mere $191 billion after accounting for faster economic growth. The larger economy and higher wages would result mainly from the reform’s far lower after-tax cost of capital investment.
Refreshing to hear about creating a robust economy rather than raising the minimum wage (a campaign that assumes thatmost people in minimum wage jobs will be trapped in them throughout their lives).