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1. Don’t Be Scared of Taxes

They won’t drive the wealthy away.

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“He wants to drive everybody out of the city,” Michael Bloomberg said on the day Bill de Blasio unveiled his proposed “millionaires’ tax” to pay for city-funded pre-K and after-school programs. De Blasio has proposed raising the tax on income over $500,000 from 3.86 percent to 4.41 percent, increasing the tax bills of those making $1 million to $5 million by an average of $7,793 and generating an estimated $530 million per year in new city revenue. Will that extra pinch cause a mass exodus of millionaires?

The research is pretty clear on this question: not a chance. A study of New Jersey’s 2004 millionaires’ tax, a comparatively massive hike from 6.37 percent to 8.97 percent on income over $500,000, provoked almost no migration by the wealthy. “We’ve always said that New Jersey is a very strong test case, because it’s the largest millionaires’ tax increase in the last ten years or so by a pretty significant margin, and it’s easy to move around the tri-state area,” said Stanford sociologist Charles Varner, who co-authored the study.

And New York might be even more resistant to flight than Jersey. “New York has a lot of unique qualities. For many people living there, there aren’t a lot of very good substitutes,” said Joel Slemrod, a University of Michigan economist. “There are agglomeration economies for your profession—being around other people in the same business—but there’s also the opera, Central Park.”

But even if the wealthy stayed, would they stop working as much, lowering the tax base? “There’s just not a lot of evidence that labor supply is that sensitive to the rate,” Slemrod added, especially for an increase like De Blasio is proposing. So what about even steeper hikes? In 2003, Bloomberg responded to a budget deficit with a three-year income-tax surcharge that upped the top rate to 4.45 percent, and Donald Trump and David Koch stuck around and kept working. How high would the millionaires’ tax have to go before New York’s wealthy stampeded to Tampa? “I don’t think there’s a tipping point that research has identified,” Slemrod said, but there’s likely room to go above the proposed combined federal, state, and city top rate of 51.8 percent (he cautions that doing so is as much a value judgment as an economic calculus). “Until we’re getting to 60 or above,” Slemrod says, “I’m happy to see a trade-off that makes very-high-income people a little bit worse off.” Which means, according to that calculus, the new middle-class mayor probably isn’t close to bringing us over the edge.


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