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Conservative Tax-Flight Myth Debunked

Center for Budget and Policy PrioritiesIn January 2010 Oregon voters approved Measures 66 and 67 which increased taxes on corporations and high-earning individuals. Anti-tax forces insisted these tax increases it would damage Oregon's economy which was already struggling under the effects of the Great Recession. Invoking a common argument against state tax increases, opponents of Measures 66 and 67 claimed is that the new tax rates would drive business and individuals in the Portland metropolitan area over the border to Washington where there is no income tax.

It didn't happen.

The Center for Budget and Policy Priorities took a look at the standard tax-flight argument and used Oregon as a test case [emphasis added]:

Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states. The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false. The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.

...

A business-financed Oregon study received much attention for purporting to show that Portland residents were moving to Washington State to avoid Oregon’s higher income tax in general and a temporary increase in the county where Portland is located in particular. But the study failed to take key facts into account. For example, Oregon taxes the wages of people who work in the state even if they live elsewhere, so people who continued to work in Oregon could not avoid paying Oregon income tax on their wages by moving to Washington. In addition, a local economic boom in Portland and other factors were causing housing prices to rise faster on the Oregon side of the border than on the Washington side during the period the study covered. In all likelihood, whatever net migration was occurring reflected housing price differentials (as well as other potential factors) more than tax differentials — but the study didn’t adjust for that.

...

Critics of tax increases (and advocates of tax cuts) have sounded their alarm so loudly and often that their unproven assertion, “if you tax them, they will flee,” has gained credibility among some policymakers and journalists. But, thanks in part to wider access to actual tax return data, independent analysts have shown that the alarmists are wrong. More careful, thorough studies have assembled compelling evidence that the effects of tax increases on migration are, at most, small. In other words: raising taxes won’t spark a large wave of out-migration, and cutting taxes won’t spark a large wave of in-migration.

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