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It is interesting that this is a summary of a published journal article and yet suffers from a rather glaring flaw. The paper looks at corporate and income tax

It is interesting that this is a summary of a published journal article and yet suffers from a rather glaring flaw. The paper looks at corporate and income tax but completely ignores sales tax, so it treats Oregon as being the highest tax state (with a 9.1% income tax rate, 0 sales tax) while a state like Texas is treated as a 0% income tax state when it has an 8.25% sales tax rate for major urban areas. Looking at their scatter plots the correlations they present look weak (the summary doesn't provide the numbers) and there is no credible theory for causation. "Star Scientists" (defined as 99th percentile income earners, 300K+) don't make location decisions based on taxes, they make decisions based on who has the infrastructure to support their work and money to pay them. Corporations might make decisions based on tax policy and they might have to take employee income taxes into account when creating a competitive compensation package for a high value employee, but one or two percentage points on the salary of a few high end employees is not going to move the needle on the overall corporate budget. Obviously taxes are part of the big picture for corporations deciding where to locate but they are probably not a big part. A state advertising low taxes may be signalling that they are "business friendly" but they are also signalling that they have an overall poor business environment and are desperate to get people in the door. Market theory suggests that taxes will adjust to an efficient level which is the maximum that individuals and corporations are willing to pay to locate somewhere. Consequently, you can judge that high tax states like California offer the best environment for business because the market is willing to pay their high taxes in order to locate there, while a hypothetical no-tax locale would be the worst environment for business because even a small tax would cause residents to leave.

briandear 9y ago
Oregon is an outlier, but with other states: TX vs. CA, you have no state income tax but you do have a sales tax while California has both. Property taxes also matter; but CA property taxes are also higher. Really what needs to be done is a measure of effective tax rates.
- SOLAR_FIELDS 9y ago
  Are CA property taxes higher than Texas? This article says the effective tax rate in Texas was almost double that of California’s two years ago:https://taxfoundation.org/how-high-are-property-taxes-your-state/ https://taxfoundation.org/how-high-are-property-taxes-your-s...
  - briandear 9y ago
    An interesting thought though.. if a 3 bedroom house in Cupertino costs $1.7 million and an equivalent house costs $250k in a Houston suburb. Then the property tax in Cupertino will be vastly higher for the same amount of space. While that higher housing cost is offset somewhat but a higher salary, that higher salary also lands you with a higher income tax bracket and overall tax bill, which means at the end of the day, your standard of living, your disposable income is vastly lower in the Bay Area vs. Houston. You could argue that Cupertino has better schools on average, but then again for the income differential, you could afford Houston’s best private schools and still come out ahead financially. The only objective reason to live in SV is because you are required too — you work at Apple, Google, etc. If you are a startup locating to locate somewhere, it’s a fallacy that you have to be in the Valley. If your business is worth funding, being near Sand Hill is unnecessary. The ‘money’ is located in the Valley for sure, but remember those guys writing the checks aren’t paying the same kind of taxes the employees are. While the people that actually have to work at your startup are just scraping by despite the high salary. I ran the numbers and it would be cheaper for me to live 2 hours from Cupertino, buy a Cessna and commute via 20 minute flight each way than to live within 20 minutes drive — that cost difference includes buying and maintaining the airplane, hangar costs as well as a cheap car kept at te Reid airport in San Jose. Even having to drive occasionally due to weather makes that idea still more reasonable. A standard engineer salary in the Valley isn’t enough to buy a house unless you win the equity lottery or save for 10 years for a down payment. Anywhere where housing is 40-50% of salary plus high taxes is a recipe for disaster — regardless of how many electric car charging stations or trains their might be. Obviously this is a tangential issue to taxes, however it’s still a vital part of the calculus of being in SV. I just wish I could commute to Nevada as that would be a huge savings, but a bit of a stretch for a twice daily Cessna flight.
- seanmcdirmid 9y ago
  California is one of the lower property tax states by rate. https://taxfoundation.org/how-high-are-property-taxes-your-state/ https://taxfoundation.org/how-high-are-property-taxes-your-s... Texas is higher, and Illinois + many north eastern states are much much higher.
- stevenwoo 9y ago
  I hear second hand from friends - tales of people buying houses in Texas (it's so cheap for so much!) then bailing after a couple of years because of the property tax burden. Even people in medicine overestimate what they can afford in property tax.
jackcosgrove 9y ago
Do you have any citations or figures to back up your claims?
dmichulke 9y ago
Income and Corporate Tax tax (and disincentivize) production, Sales Tax taxes consumption. IMO the latter is preferable because of the above plus it doesn't accrue.
- fiblye 9y ago
  Sales tax also puts a larger unavoidable burden on the poor, which I suppose is preferable to some. Then consumer spending among groups who have no room to save leads to them buying cheaper products, increasing numbers of which are cheap or shoddy alternatives, and in the case of non-food items, cheap imports.
  - kodablah 9y ago
    In many cases, like Texas, necessities like food, medicine, baby products, etc are exempt from sales tax to reduce this burden.
- PostOnce 9y ago
  Sales tax is like inverting the income tax brackets. Suppose the rich can buy everything they need with 1% of their income, sales tax is 10%. Then, the rich are paying 0.1% income tax. If the poor have to spend 20% of their income on the same necessities, they are paying twenty times more tax per amount of income.
  - rayiner 9y ago
    Both things are true. Income taxes are less efficient, sales taxes are more regressive.
    - klipt 9y ago
      Possibly the most efficient and progressive tax is a land value tax: https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
  - remarkEon 9y ago
tom_mellior 9y ago
> "Star Scientists" (defined as 99th percentile income earners, 300K+) No! The definition they use is "95th percentile of patents awarded", then they assume that these people are probably in the 99th income percentile. But they present no data to validate this assumption (at least in this summary of the journal article). Personally, I'm not convinced that the assumption holds. Edit: Also, the figure of 300K+ doesn't appear in the post, and a very quick poke around Wikipedia didn't confirm that number for the 99th income percentile. Do you have a source?
- saas_co_de 9y ago
  Yeah, the methodology is weird. I got the income info from here: https://seekingalpha.com/article/4109731-united-states-income-brackets-percentiles-2017 https://seekingalpha.com/article/4109731-united-states-incom...
  - tom_mellior 9y ago
    Thanks! I do note this only refers to "workers" (they give an exact definition), so does not include people who only have unearned income. I don't know how much that would distort the data at the top.
- notahacker 9y ago
  Finding an objective definition for "star scientists" isn't easy, but the one they've chosen does have the deficiency of being more likely to identify patent trolls than most Nobel Prize winners. Suspect the former group's choice of domicile is much more closely correlated with tax advantage than the latter's.
Spooky23 9y ago
Some of these “low tax” states bury costs in other areas. Things like sales tax on food, user fees for basic services like fire protection, poor regulatory environment for things like ehalth care, etc.
- Retric 9y ago
  The only way to compare high vs low taxes is government spending / GDP. Anything else is just comparing how things are taxed not how much people pay.
  - yequalsx 9y ago
    One should also compare effective tax rate on overall wealth. Comparing the top 1%, 5%, and 10% to the bottom 50% would be interesting. Low income tax states generally get a higher proportion of their revenue from regressive taxes and fees.
- stevenwoo 9y ago
  My favorite is Texas with no income tax and a.)chronically underfunded public schools with the situation getting worse as tea party influence on state legislature increases over the years b.) maternity outcomes worse than almost every other country on earth.
  - chiph 9y ago
    You need to know a little more about Texas schools first. 1. They're independent, which means that they have their own taxing authority. Citizens in the ISD (Independent School District) get a bill yearly to pay the tax. So if you buy land here, you need to know what school, emergency services, water, etc. district you'll be in to get an idea of what your taxes will be (commonly in the 2-3% of your property value every year). 2. Because many ISDs are in low-population areas, or areas with low-value land (since the taxes are based on property values), ISDs in wealthy areas have what is called recapture. Which means that funds are taken from them and redistributed to the rest of the state. So people owning property in Austin, Houston, Dallas, etc. are funding schools in the rest of the state. 3. The tea party influence (deep conservatives) in the legislature is real. They do support better schools - only they support some subjects more than others. And some not at all.. But they only meet every 2 years so their influence is limited on the ISDs.
BeetleB 9y ago
>The paper looks at corporate and income tax but completely ignores sales tax, Say I make $150k/yr. Income tax will be taxed on almost all of it. Sales tax will be taxed on what I spend. I'm pretty sure I'll spend a lot less than $150k/yr. The effect of income tax for higher income folks vastly exceeds the effect of sales tax.
- shifter 9y ago
  This.
- dmode 9y ago
  Your assessment is flawed. Because income taxes are generally progressive, you will have a lower rate applied to a portion of your income and higher rates towards the top end. Effectively paying a lower absolute rate. But you would pay the full sales tax on all your purchase, leading to a similar net effect.
  - BeetleB 9y ago
    >Your assessment is flawed. Because income taxes are generally progressive, you will have a lower rate applied to a portion of your income and higher rates towards the top end. My assessment takes all of that into account. I live in one of the higher income tax states, and one of the lower sales tax rates. I have real numbers I can work with. I pay over $6K/year in state income tax, and my income is nowhere near $150K. Do the math: At a 10% sales tax, how much do I need to spend to match that? If I take all of my annual spending per year, a 10% sales tax would be less than $6K. And keep in mind we don't pay sales tax for housing and services. At 10%, my sales tax would likely be under $3K. Perhaps even under $2K. >But you would pay the full sales tax on all your purchase, leading to a similar net effect. Not true in many states. In one state I lived in the sales tax on groceries was 1%, and over 6% on everything else, for example. I believe I encountered a state with 0% sales tax on groceries, but high on everything else.
  - quadrangle 9y ago
    > Because income taxes are generally progressive Except that assumption is wrong. State taxes are typically not progressive, even though they should be. The lack of progressive brackets at the state level is one of the sources of biggest economic injustice in our tax system in this country.
a3n 9y ago
> The paper looks at corporate and income tax but completely ignores sales tax, so it treats Oregon as being the highest tax state (with a 9.1% income tax rate, 0 sales tax) while a state like Texas is treated as a 0% income tax state when it has an 8.25% sales tax rate for major urban areas. Point taken, but, there's a practical limit to how much a high earner can buy and thereby pay sales tax, but there's relatively less limit to how much a high earner can earn and thereby pay income tax. Kind of like shorting stock. To say it another way, you can choose to limit your purchases, but you're highly unlikely to forgo income. Orthoganally, both taxes greatly impact low earners, since most or all such wages must be spent. Sales tax impacts high earners much less than income tax.
chiefalchemist 9y ago
> "The paper looks at corporate and income tax but completely ignores sales tax..." Good point. But I would take it a step further. It's all taxes. For example, tax on energy, gasoline, etc., or property taxes. The state and local govs require revenue. To think these entities exist but don't require revenue is simplistic, if not naive. Regardless of what form it takes, a tax is a tax is a tax. For the sake of transparency, simplicity and efficiency (i.e., each tax has some infrastructure to implement it, police it, etc.) we'd be best served with a single trackable tax. As it is, we get nickled and dimed without realizing it. What's worse we (thr people) can't "manage" and can't hold accountable that which we can't identify.
visarga 9y ago
> Looking at their scatter plots the correlations they present look weak TU;DR (too uncorrelated, didn't read). When I scrolled down and saw those poor regressions, I immediately decided to close the page.
fred_is_fred 9y ago
Texas also has massive real estate taxes which would impact high earners more than sales taxes. Colorado has a 4.6% income tax but I pay 30% of the rate that my Texas colleagues do in taxes on my house.

briandear 9y ago

Oregon is an outlier, but with other states: TX vs. CA, you have no state income tax but you do have a sales tax while California has both. Property taxes also matter; but CA property taxes are also higher. Really what needs to be done is a measure of effective tax rates.

SOLAR_FIELDS 9y ago
Are CA property taxes higher than Texas? This article says the effective tax rate in Texas was almost double that of California’s two years ago:https://taxfoundation.org/how-high-are-property-taxes-your-state/ https://taxfoundation.org/how-high-are-property-taxes-your-s...
- briandear 9y ago
  An interesting thought though.. if a 3 bedroom house in Cupertino costs $1.7 million and an equivalent house costs $250k in a Houston suburb. Then the property tax in Cupertino will be vastly higher for the same amount of space. While that higher housing cost is offset somewhat but a higher salary, that higher salary also lands you with a higher income tax bracket and overall tax bill, which means at the end of the day, your standard of living, your disposable income is vastly lower in the Bay Area vs. Houston. You could argue that Cupertino has better schools on average, but then again for the income differential, you could afford Houston’s best private schools and still come out ahead financially. The only objective reason to live in SV is because you are required too — you work at Apple, Google, etc. If you are a startup locating to locate somewhere, it’s a fallacy that you have to be in the Valley. If your business is worth funding, being near Sand Hill is unnecessary. The ‘money’ is located in the Valley for sure, but remember those guys writing the checks aren’t paying the same kind of taxes the employees are. While the people that actually have to work at your startup are just scraping by despite the high salary. I ran the numbers and it would be cheaper for me to live 2 hours from Cupertino, buy a Cessna and commute via 20 minute flight each way than to live within 20 minutes drive — that cost difference includes buying and maintaining the airplane, hangar costs as well as a cheap car kept at te Reid airport in San Jose. Even having to drive occasionally due to weather makes that idea still more reasonable. A standard engineer salary in the Valley isn’t enough to buy a house unless you win the equity lottery or save for 10 years for a down payment. Anywhere where housing is 40-50% of salary plus high taxes is a recipe for disaster — regardless of how many electric car charging stations or trains their might be. Obviously this is a tangential issue to taxes, however it’s still a vital part of the calculus of being in SV. I just wish I could commute to Nevada as that would be a huge savings, but a bit of a stretch for a twice daily Cessna flight.
seanmcdirmid 9y ago
California is one of the lower property tax states by rate. https://taxfoundation.org/how-high-are-property-taxes-your-state/ https://taxfoundation.org/how-high-are-property-taxes-your-s... Texas is higher, and Illinois + many north eastern states are much much higher.
stevenwoo 9y ago
I hear second hand from friends - tales of people buying houses in Texas (it's so cheap for so much!) then bailing after a couple of years because of the property tax burden. Even people in medicine overestimate what they can afford in property tax.

jackcosgrove 9y ago

Do you have any citations or figures to back up your claims?

dmichulke 9y ago

Income and Corporate Tax tax (and disincentivize) production, Sales Tax taxes consumption. IMO the latter is preferable because of the above plus it doesn't accrue.

fiblye 9y ago
Sales tax also puts a larger unavoidable burden on the poor, which I suppose is preferable to some. Then consumer spending among groups who have no room to save leads to them buying cheaper products, increasing numbers of which are cheap or shoddy alternatives, and in the case of non-food items, cheap imports.
- kodablah 9y ago
  In many cases, like Texas, necessities like food, medicine, baby products, etc are exempt from sales tax to reduce this burden.
PostOnce 9y ago
Sales tax is like inverting the income tax brackets. Suppose the rich can buy everything they need with 1% of their income, sales tax is 10%. Then, the rich are paying 0.1% income tax. If the poor have to spend 20% of their income on the same necessities, they are paying twenty times more tax per amount of income.
- rayiner 9y ago
  Both things are true. Income taxes are less efficient, sales taxes are more regressive.
  - klipt 9y ago
    Possibly the most efficient and progressive tax is a land value tax: https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
- remarkEon 9y ago

tom_mellior 9y ago

> "Star Scientists" (defined as 99th percentile income earners, 300K+) No! The definition they use is "95th percentile of patents awarded", then they assume that these people are probably in the 99th income percentile. But they present no data to validate this assumption (at least in this summary of the journal article). Personally, I'm not convinced that the assumption holds. Edit: Also, the figure of 300K+ doesn't appear in the post, and a very quick poke around Wikipedia didn't confirm that number for the 99th income percentile. Do you have a source?

saas_co_de 9y ago
Yeah, the methodology is weird. I got the income info from here: https://seekingalpha.com/article/4109731-united-states-income-brackets-percentiles-2017 https://seekingalpha.com/article/4109731-united-states-incom...
- tom_mellior 9y ago
  Thanks! I do note this only refers to "workers" (they give an exact definition), so does not include people who only have unearned income. I don't know how much that would distort the data at the top.
notahacker 9y ago
Finding an objective definition for "star scientists" isn't easy, but the one they've chosen does have the deficiency of being more likely to identify patent trolls than most Nobel Prize winners. Suspect the former group's choice of domicile is much more closely correlated with tax advantage than the latter's.

Spooky23 9y ago

Some of these “low tax” states bury costs in other areas. Things like sales tax on food, user fees for basic services like fire protection, poor regulatory environment for things like ehalth care, etc.

Retric 9y ago
The only way to compare high vs low taxes is government spending / GDP. Anything else is just comparing how things are taxed not how much people pay.
- yequalsx 9y ago
  One should also compare effective tax rate on overall wealth. Comparing the top 1%, 5%, and 10% to the bottom 50% would be interesting. Low income tax states generally get a higher proportion of their revenue from regressive taxes and fees.
stevenwoo 9y ago
My favorite is Texas with no income tax and a.)chronically underfunded public schools with the situation getting worse as tea party influence on state legislature increases over the years b.) maternity outcomes worse than almost every other country on earth.
- chiph 9y ago
  You need to know a little more about Texas schools first. 1. They're independent, which means that they have their own taxing authority. Citizens in the ISD (Independent School District) get a bill yearly to pay the tax. So if you buy land here, you need to know what school, emergency services, water, etc. district you'll be in to get an idea of what your taxes will be (commonly in the 2-3% of your property value every year). 2. Because many ISDs are in low-population areas, or areas with low-value land (since the taxes are based on property values), ISDs in wealthy areas have what is called recapture. Which means that funds are taken from them and redistributed to the rest of the state. So people owning property in Austin, Houston, Dallas, etc. are funding schools in the rest of the state. 3. The tea party influence (deep conservatives) in the legislature is real. They do support better schools - only they support some subjects more than others. And some not at all.. But they only meet every 2 years so their influence is limited on the ISDs.

BeetleB 9y ago

>The paper looks at corporate and income tax but completely ignores sales tax, Say I make $150k/yr. Income tax will be taxed on almost all of it. Sales tax will be taxed on what I spend. I'm pretty sure I'll spend a lot less than $150k/yr. The effect of income tax for higher income folks vastly exceeds the effect of sales tax.

shifter 9y ago
This.
dmode 9y ago
Your assessment is flawed. Because income taxes are generally progressive, you will have a lower rate applied to a portion of your income and higher rates towards the top end. Effectively paying a lower absolute rate. But you would pay the full sales tax on all your purchase, leading to a similar net effect.
- BeetleB 9y ago
  >Your assessment is flawed. Because income taxes are generally progressive, you will have a lower rate applied to a portion of your income and higher rates towards the top end. My assessment takes all of that into account. I live in one of the higher income tax states, and one of the lower sales tax rates. I have real numbers I can work with. I pay over $6K/year in state income tax, and my income is nowhere near $150K. Do the math: At a 10% sales tax, how much do I need to spend to match that? If I take all of my annual spending per year, a 10% sales tax would be less than $6K. And keep in mind we don't pay sales tax for housing and services. At 10%, my sales tax would likely be under $3K. Perhaps even under $2K. >But you would pay the full sales tax on all your purchase, leading to a similar net effect. Not true in many states. In one state I lived in the sales tax on groceries was 1%, and over 6% on everything else, for example. I believe I encountered a state with 0% sales tax on groceries, but high on everything else.
- quadrangle 9y ago
  > Because income taxes are generally progressive Except that assumption is wrong. State taxes are typically not progressive, even though they should be. The lack of progressive brackets at the state level is one of the sources of biggest economic injustice in our tax system in this country.

a3n 9y ago

> The paper looks at corporate and income tax but completely ignores sales tax, so it treats Oregon as being the highest tax state (with a 9.1% income tax rate, 0 sales tax) while a state like Texas is treated as a 0% income tax state when it has an 8.25% sales tax rate for major urban areas. Point taken, but, there's a practical limit to how much a high earner can buy and thereby pay sales tax, but there's relatively less limit to how much a high earner can earn and thereby pay income tax. Kind of like shorting stock. To say it another way, you can choose to limit your purchases, but you're highly unlikely to forgo income. Orthoganally, both taxes greatly impact low earners, since most or all such wages must be spent. Sales tax impacts high earners much less than income tax.

chiefalchemist 9y ago

> "The paper looks at corporate and income tax but completely ignores sales tax..." Good point. But I would take it a step further. It's all taxes. For example, tax on energy, gasoline, etc., or property taxes. The state and local govs require revenue. To think these entities exist but don't require revenue is simplistic, if not naive. Regardless of what form it takes, a tax is a tax is a tax. For the sake of transparency, simplicity and efficiency (i.e., each tax has some infrastructure to implement it, police it, etc.) we'd be best served with a single trackable tax. As it is, we get nickled and dimed without realizing it. What's worse we (thr people) can't "manage" and can't hold accountable that which we can't identify.

visarga 9y ago

> Looking at their scatter plots the correlations they present look weak TU;DR (too uncorrelated, didn't read). When I scrolled down and saw those poor regressions, I immediately decided to close the page.

fred_is_fred 9y ago

Texas also has massive real estate taxes which would impact high earners more than sales taxes. Colorado has a 4.6% income tax but I pay 30% of the rate that my Texas colleagues do in taxes on my house.