Wed 27 Jul 2005
A recent article co-authored by Economics Professor Jon Bakija seems interesting:
Well-heeled retirees often relocate to warmer climes in search of sunny skies and year-round golfing, but they also move to avoid paying higher taxes, says a University of Michigan economist.
A new study by Joel Slemrod of Michigan’s Stephen M. Ross School of Business and colleague Jon Bakija of Williams College suggests that wealthy elderly people change their real (or reported) state of residence to avoid paying high state taxes, particularly those that target estates and inheritance, as well as purchases.
High personal income taxes and property taxes levied by states also give upper-bracket taxpayers additional incentives to pack up their bags and head for places with lower, less progressive tax rates.
The College often arranges faculty lectures, either at reunion and home-coming week-ends or at alumni meetings around the country. Why not ask Bakija to speak on this topic? The College has every incentive to help its wealthy alums save money from the tax man . . .
July 27th, 2005 at 8:12 am
“The College has every incentive to help its wealthy alums save money from the tax man . . .”
Ugh, that’s a horrible sentiment, David. While I oppose just about everything this administration does, those tax dollars are used for a lot of good as well.
Care to take that one back?
July 27th, 2005 at 8:17 am
It is obvious what Kane meant: wealthy alums that save money on taxes can consequently give more money to Williams. I don’t think that’s offensive.
July 27th, 2005 at 8:26 am
“It is obvious what Kane meant: wealthy alums that save money on taxes can consequently give more money to Williams.”
Aidan — I agree, I know what he meant. But don’t you see the problem inherent in that? True, a lot of the donations to Williams benefit low-income families in the form of scholarships, etc., and obviously that money helps everyone associated with Williams, but a) just because the wealthy alums saved money on taxes doesn’t mean they will give to Williams, and b) there is a greater good than one small private college in the Berkshires…
July 27th, 2005 at 9:19 am
Why is this a “horrible sentiment”? Consider an alum, perhaps our own Frank Uible ‘59. He has, let us assume, a nice nest egg. He lives in Massachusetts now but is considering a move to Florida.
Is it “horrible” for him to consider, as one issue among many, the tax consequences of the move? I don’t think so. It is, after all, his money. Is it “horrible” for Professor Bakija to study the effects of tax rates on retirement locations? Obviously not. Is there a problem with the College connecting faculty who study topic X with alums and others interested in topic X? No.
DeWitt notes that “there is a greater good than one small private college in the Berkshires”. Perhaps. But who determines that good? Me? DeWitt?
Being a classical liberal, I like to leave that decision up to each individual. If DeWitt wants to give lots of his money to Williams, great. If he wants to give it to charity X, fine. If he wants to just send it to the US government, that’s his business. In fact, if he wants to spend his money on fancy computer hardware for his personal use, then more power to him. Would DeWitt deny the same freedom to his fellow Ephs? Why is he better placed to determine how much of their money should go to the government and how much to Williams?
Side note: DeWitt claims that “just because the wealthy alums saved money on taxes doesn’t mean they will give to Williams.” True, for any individual. But, on average, more money in the pockets of alums means more donations to the College. How could that not be true?
July 27th, 2005 at 10:17 am
I am interested in (and so far effectively accomplish at least in a limited sense) the following in no particular order, without specifying emphasis and among other things: 1) spending on myself; 2) spending on my spouse, children, daughters-in-law and grandchildren; 3) passing assets to my heirs; 4) residing in Williamstown, a relatively high tax location of residence; 5) making certain charitable donations, some to Williams College; and 6) avoiding (not evading) taxes. Being successful with number 6 assists in success with the others; being unsuccessful with number 6 may curtail, or in some cases negate, success with the others. If governments do not like the outcome of my financial decisions and those of others situated similarly to me, they are free to attempt to change the laws applying to those decisions. Of course, I reserve the right to change in prospect, from time to time and at any time the facts relating to my financial decisions. Incidentally I’m Class of ‘57. I write younger than I am.
July 27th, 2005 at 10:22 am
“Being a classical liberal, I like to leave that decision up to each individual.”
Isn’t that the classic Libertarian policy? I always thought the classic liberal believed in having a government that would look after the interests of those who are disadvantaged, and can’t look after themselves.
I believe in a government “of the people, by the people, for the people,” — and that the government exists to serve the common good, particularly in times in which there are many (or even a few) that can not serve themselves.
Going back as far as I can remember I’ve argued that our rate of taxation is too low. (I’ve also argued in favor of a flat tax rate, but that is somewhat orthogonal.) Of course, it is one thing to say those things when you are a poor college student and pay nothing in taxes — it is quite another to argue that when you are an adult.
Interestingly, I still make that case. Even though I am proportionately paying more of my income in taxes today than I ever will again. (Given my tax bracket, lack of a morgage, single marital status, and no kids.) I probably pay, percentage wise, more in taxes than just any other group in the country. Yet I believe in those tax dollars. I believe that those dollars are necessary in order to provide for the vast myriad of civil services that make this nation great. And more importantly, I don’t believe that any one man or woman should take it upon themselves to decide what the definition of “common good” is. If you believe in democracy, then you can believe that the democratic process will help determine who needs that money better than you alone can.
And all this is coming from the perspective of someone who vehemently does not like the current administration or personally support how massive portions of those tax dollars are spent (i.e., funding that war).
So no, I don’t agree with people that want to dodge taxes. If everyone did that, or attempted to do that, then we would have no public school system, no public hospitals, no police or fire departments serving low-income communities, no after-school programs in poor neighborhoods, no food assistance for the needy, no public transportation or road maintenance outside affluent routes, no social security, and more, no government scholarships helping smart kids to Williams.
July 27th, 2005 at 10:52 am
The term “classical liberal” generally refers to limitting the power of the state and is broadly consistent with the Libertarian notion that people should be able to do what they want as long as they don’t hurt others. I believe that it has little if anything to do with “a government that would look after the interests of those who are disadvantaged.”
Perhaps a flat tax is another idea that will bring together the diverse readers of EphBlog!
It seems that our dispute boils down to what it means to “dodge” taxes. We all agree that you should pay the taxes that you are legally obligated to pay. We all agree that you can move from Massachusetts to Florida if you want. I do not think that considering tax rates in making a decision about where to live or where to shop is dodging taxes.
For example, I assume that DeWitt has no problem with me buying books from Amazon even though doing so reduces the tax take for Massachusetts. Isn’t it alright for me to consider the tax (really, the total cost/convenience package) ramifications of where I buy my books? Does “use Amazon” == “dodge Massachusetts state sales taxes”? I don’t think so.
July 27th, 2005 at 11:06 am
“The term ‘classical liberal’ generally refers to limiting the power of the state [...]“
Oh, I didn’t know that. (So much for my fancy Williams Political Science degree… Good thing I also did C.S.!) Thank you for teaching me something today, David.
I think you are right in how you boil it down. I agree, the individual should have a right to decide how they spend their money. (I may have socialist tendencies, but individual descretion over personal spending is absolutely essential for innovation and growth.) And if someone makes a choice to buy over the Internet instead of locally to avoid taxes, I certainly can sympathize with that. That said, I think the fact that we have different tax rates like that is rather off, and something the new tax laws are trying to address.
But I still wonder how much society benefits when those that become wealthy enough to afford to relocate to tax-havens start doing so…
Ah well, I can’t change the world. Just hope for the best.
July 27th, 2005 at 11:15 am
Do people really want to get into this debate? If so, I will unleash a can of whoop-ass. If not, I would simply like to point out taxes are something like speed limits. Yeah, it sucks on an individual level that they exist, and every person tries to circumvent them, but if they were not in existence the collective impact would be be catastrophic.
July 27th, 2005 at 11:26 am
A couple of things, in no particular order:
1) We live in America, a land founded in no small measure on a desire to lower tax burden. Wanting (and seeking) lower taxes is as fundamental an American value as any.
2) Tax rates serve to incentivize economic spending. Is there a reason people buy TVs in Delaware (no sales tax) or New Hampshire stores advertise heavily in Boston (no sales tax)? People would like to spend money. In my first year paying real taxes, I certainly didn’t avail myself of the option, presented to me by the state of Massachusetts, to pay more taxes if I so desired. If I could live somewhere with a cheaper cost of living (and taxes factor into that) I would be tempted…
3) Nobody, as far as I’ve noticed (Eisler) has said anything about cessation of taxes, merely the shifting of tax burden. If you want to move to Florida for the weather, and also because you’ll make more money, well, I don’t think that’s a problem at all.
4) Finally, I don’t think advocating for lower taxes rates even approaches the mundane. This has been GOP party doctrine since well before I was born, and (see #1) serves as authentic American doctrine.
July 27th, 2005 at 11:27 am
Interesting, all of this. (Much as when I had him as a professor, Bakija is often dedicated to proving those things that we may instinctively feel, but haven’t bothered to check.)
The focus of his research points out to me, though, more than any wrangling over how taxes should be spent, just how limited our modeling of how taxes are circumvented really is. A new book “Offshore: The Dark Side of the Global Economy” shows the rough silhouette of the real big fish in this pond. Most Williams grads moving across state lines, I hate to say, are pikers. Nah, make that guppies.
July 27th, 2005 at 11:30 am
PS, nobody tempt Eisler’s whoopass. Not that I fear it, it just smells rank.
July 27th, 2005 at 11:32 am
“[...] taxes are something like speed limits [...]“
Well said! And I guess my position comes down to:
I don’t really respect people who brag about avoiding taxes any more than I respect people who brag about breaking the speed limit.
Sure, everyone does it from time to time, but is it exactly something we should be proud of?
July 27th, 2005 at 11:45 am
Aidan, we’re not getting into this debate because it is long and boring, but you are slowly but apparently ineluctably transforming into a conservative asshat.
(The tax/speed limit analogy was one designed to address human psychology, not quantitative distinctions. Moreover, if a government is spending properly, paying taxes is a contribution to greater social stability and superior services, as well as justice [on a related note, your definition of freedom is one that arguably only apt for the privileged, Kane. Horatio Alger is bullsh*t]. It’s not to be avoided like skipping detention. Granted, I hate paying them as much as the next guy and will do what I can to minimize, but I’m still highly suspicious of collective dodging of the bullet …)
July 27th, 2005 at 11:51 am
“We live in America, a land founded in no small measure on a desire to lower tax burden”
Aidan, one more thing before I check out on this one… I imagine that you recall that this country was founded by people that wanted to end taxation without representation. I.e., I’m not so sure you are correct in your interpretation of the will of the founders.
July 27th, 2005 at 12:02 pm
it won’t let me post the long and detailed reply, so let’s just say this:
wikipedia under the word “liberalism” includes both social liberalism and libertarianism. So we’re all right!
July 27th, 2005 at 2:26 pm
Okay.
1) taxation without representation, repeal of the stamp tax act, I would imagine there’s enough wiggle in interpretation here for everyone. Suffice it to say, by seceeding from British rule, the colonials ended up paying vastly fewer taxes (no federal taxes, yet) and reducing their governmental overhead. Now, is this the only way to look at the revolution? No. Is this necessary and complete? No. But, it is a factor.
2) America, to some extent, is a federation of states with an uneasy relationship to federal power. Some would say, and I agree, that the balance forever shifted on July 3rd, 1863 but that quibble does little to erase the point: different states have different tax burdens, structured in different ways.
3) Eisler seems to miss the point that different state tax burdens have nothing to do with federal tax burden or policy. Whatever you feel about spendinig, they are, to a great extent, very different issues.
In any case, this is a remarkably silly argument. Then again, as I live in Massachusetts, maybe I’m just grousing.
July 27th, 2005 at 2:46 pm
Since I am procrastinating today, I will offer up pointless musings in no particular order:
1) DeWitt, this is what you get for taking courses with post-modernists like Paige Beatty or pseudo-postmodernists like Mark Rheinhardt.
2) One regular pattern in public opinion is that respondents want lower taxes and increases services simultaneously. Either the individual respondents want someone else to foot the bill, think there is a LOT of government waste, and/or have a cognitive disconnect.
3) As Aidan points out, our founders possessed a similar disconnect. The stamp and tea taxes were levied in response to the costs associated with fighting the French-Indian War. The colonists were expecting expensive services from the British government (e.g., defense) and did not want to pay for them. “No taxation without representation” is a fine principle, but it isn’t clear that the sentiment rather than actual tax burden caused the revolution.
4) State budgets are heavily subsidized by the national government. The net result is that state governments can provide far more services than their tax rates might indicate. I wonder if this fact skews public perception of taxes and government services.
5) I have enjoyed watching Mitch Daniels struggle with the Indiana budget this year. My Man Mitch earned the nickname “The Blade” while in Washington because of his constant calls to slash state budgets. So he took over the Indiana governorship in 2004 with calls for lowering taxes. Well, one of the first things he did was raise taxes (thereby demonstrating some fiscal sanity on his part).
6) Differing tax rates create some competition among states, but the “race to the bottom” seems to be limited in scope.
Okay, I’m done procrastinating.
July 27th, 2005 at 2:59 pm
“DeWitt, this is what you get for taking courses with post-modernists like Paige Beatty or pseudo-postmodernists like Mark Rheinhardt.”
This from a man who signs his name “(d)avid”.
: )
Seriously, though, I ran into Mark two weekends ago in Williamstown (first time back there in five years) and it was really good to see him. He almost inadvertently talked me into going back to school and getting my PhD (in something multi-disciplinary like political theory, no doubt).
July 28th, 2005 at 5:18 am
Aidan, Aidan…what happened to the days when calling you an ‘asshat’ in a public forum would have produced a torrent of abuse so excessive as to be almost Mannerist in quality? Perhaps we are simply growing old…
Anyways, I was criticizing the general (perhaps implied, or, on my part, assumed) attitude of ‘Evading taxes (any taxes) so you can give to rich colleges is a necessary good’ rather than the idea of people relocating with tax rates as a factor (if you don’t see the possibility for this transition, well…squint). Though even the latter does strike me as a bit…’fleeing the city for the suburbs’, if you will. Leave behind those who spend taxes rather than produce them to rot in their own lack of productivity, too poor and underdeveloped to change their condition…
July 28th, 2005 at 7:54 am
“fleeing the city for the suburbs” says a kid who moved to New Hampshire, perhaps partly because of the lack of a tax rate?
July 28th, 2005 at 8:00 am
Are you messing with the Family, Aidan?
Because I really wouldn’t mess with the Family.
July 28th, 2005 at 9:16 am
I used to be in favor of taxes and would abhor anyone who complained of them…then I moved to DC and saw how wasteful a city could be with it’s tax money (thank god I don’t live here because the rate is so high). Maybe we should just adopt performance pay for those that spend our tax money, or a sliding tax on their earnings depending on how they do. I’d enjoy seeing Anthony Williams (mayor of DC) begging for change outside a Nationals game.
July 28th, 2005 at 11:58 am
Well, DC is certainly among the worst. How much of the primo land in DC is tax-exempt (see: every Federal building and monument)? DC taxes (sales and otherwise) are brutal as a result.
It is amazing what getting a paycheck and then seeing part of it wasted by the government does for all of the wild-eyed idealism.
July 28th, 2005 at 2:47 pm
Still procrastinating, so …
I have no idea as to the degree of government waste in DC city government. A certain high profile mayor who was “set up” doesn’t exactly inspire confidence. However, as Neal points out, a large portion of DC is tax exempt. Many other cities a similar problem with government, colleges, churches, museums and other non-profit entities — though none to the extent of DC.
Another problem facing cities (and DC especially) is that they end up providing services to persons living in the suburbs. Roads, policing, emergency care and numerous other services are consumed by people living in the suburbs who come into the city for work or entertainment. In fact, some scholars who research cities (Doug Rae, for instance) argue that cities are more responsive to the dollars in the suburbs than their own constituents. [Note: Doug has a tragicomedic story about trying to build a public health clinic in New Haven. They ended up with a tennis center used for the Pilot Tennis tournament and little else.]
July 28th, 2005 at 6:45 pm
Did you ever try to get anything done by way of your physical presence at the City Hall of any sizable to major American city? The large number of sinecures standing (and usually sitting) around doing nothing, and upon urging barely willing to do anything, is testimony to the gross indifference and inefficiency (and often corruption) of the city in general and with respect to the use of its revenues specifically!