Reposted from Ian Reifowitz by Ian Reifowitz
Phil Mickelson is one of the top golfers in the world. He's also now saying this:
LA QUINTA, Calif. -- Phil Mickelson said he will make "drastic changes" because of federal and California state tax increases.
Mickelson says he might retire or move from California.
"I'm not sure what exactly, you know, I'm going to do yet," Mickelson said. "I'll probably talk about it more in depth next week. I'm not going to jump the gun, but there are going to be some. There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and, you know, it doesn't work for me right now. So I'm going to have to make some changes."
Conservative bloggers are already gloating
about how this is some kind of sign that Obama, the big meanie who loves to stick it rich people (even though he is one of them), is going to destroy capitalism or some other such nonsense.
Of course, Mickelson, who is a Republican according to a number of sites that list "Republican Celebrities," describes his tax situation in notably false terms.
"If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent,"
Whoa there! We're all entitled to our own opinion, but not our own facts, as the late Sen. Moynihan
Mickelson, according to the New York Times article on this same subject, earned $47.8 million last year, $43 million of which came from endorsements, ranking him 7th among all athletes.
So, let's do some math. Mickelson mentions Social Security, but of course people only pay Social Security taxes on the first $110,000 of earnings. With earnings of $47.8 million in 2012, Mickelson pays essentially 0% toward Social Security. His California income tax rates did go up retroactive to 1/1/12, and his rate is 13.3% on income over $1 million, up from 10.3% before the tax increases. The California increases sunset after 7 years, it is worth noting. Medicare taxes (which are not capped and apply to the whole of one's income) will be 2.35% (or 3.8% if he is considered self-employed, which he may well be) for Mickelson in 2013, 0.9% of which is an increase kicking in on 1/1/13. Add the new federal rate of 39.5% (up 4.5% for income over $450,000 for a family) for the top bracket (most of Mickelson's income falls into the top bracket for state and federal purposes), his actual income tax rate on income over $1 million would be about 55% -- or 57% if he is self-employed -- and lower on the rest of the income. Nothing to sneeze at, but not the 62 or 63% he claimed. (Note: there are some other increases on federal capital gains taxes, which nonetheless remain taxed at a much lower rate than ordinary income, so any capital gains earnings would bring his income tax rate down).
Plus, of course, any accountant who can spell R-O-M-N-E-Y can get Mickelson's effective tax rate, i.e., what he actually pays, down significantly from that 55 or 57% rate.
Would Mickelson actually retire from golf because of an 8.4% increase in his federal plus state income tax rate plus Medicare rate? Maybe. But who cares? Some other golfer will simply earn the money he'd have earned. Are we saying that to avoid "losing" Phil Mickelson's golf career we shouldn't raise those taxes on high incomes and instead cut more from schools or roads or health care? Because it is either/or folks, especially thanks to the deficit scolds out there.
And remember, only 10% of Mickelson's income is from playing golf, the rest is from endorsements. He'd still likely get plenty of those for years to come. Arnold Palmer (age 83) is still raking in endorsement money from his golf playing days. And would Mickelson move from California to avoid the lousy 3% in state tax increases? He has three daughters under the age of 14. Is he going to move them out of school to another state to avoid paying 3 lousy percent more in taxes? If so, I can think of a few choice adjectives I'd call him. Come on.
But Mickelson's entire statement on this matter is part of a larger conservative meme about tax hikes and people going Galt. If taxes are too high, we supermen just won't work anymore. We'll take our ball and go home, or just move to another state, crippling any state government that raises taxes.
Here's what actual research shows:
Opponents of raising tax rates on high-income households often argue that sensitivity to marginal tax rates is so extreme that those affected will vote with their feet and depart for states where they would pay lower income taxes or none at all. The result, they contend, is to diminish, or even eliminate, the revenue potential of such tax increases.
This argument is highly exaggerated and not based on real-world evidence. Research in New Jersey and California shows conclusively that tax rate increases for high-income residents in fact raise significant amounts of revenue. And recent analysis also shows that tax increases have, at most, only a small impact on interstate migration patterns.
In fact, attempts to measure the relationship between interstate migration and tax progressivity have yielded mixed results. The most recent studies have found that higher marginal income tax rates have a very small impact on where people decide to live. Other factors such as crime rates and the natural environment play a very significant role.
For example, a September 2008 Princeton University study concluded, “the ‘half-millionaire tax,’ at least in New Jersey, appears to be an effective and efficient revenue-generation mechanism, having little impact on migration patterns among half-millionaire households.” The study estimated that New Jersey lost $37.7 million a year from people leaving the state because of the 2004 tax increase. They called this “a small opportunity cost of a tax policy that generated more than $1 billion for Tax Year 2006.” Furthermore, the study found that household income has grown rapidly among wealthy New Jerseyans in recent years despite the tax. From 2002 to 2006, the number of New Jersey households with incomes of $500,000 or more grew to 44,000 from 26,000, an increase of 70 percent.a
Similarly, an analysis by the California Budget Project found that the number of high-income households in that state has grown substantially during periods in which higher top income tax rates were in effect. According to CBP’s findings, “the number of California’s joint personal income tax filers with incomes of $200,000 or more rose by 33.4 percent between 1991 and 1995 — a period in which California temporarily imposed 10 percent and 11 percent tax rates on high income earners.” More recently, California enacted a 1 percentage point increase on income over $1 million. The tax generated new revenue totaling about $1.5 billion in fiscal year 2008 alone. Much like the pattern observed following the tax increases of the early 1990s, the CBP analysis showed the number of taxpayers with incomes over $1 million increased — by 37.8 percent from 2004 to 2006.b
An analysis by the Institute on Taxation and Economic Policy in May 2009 calls into question the claim that the higher tax rates passed in Maryland in 2007 and 2008 have caused millionaires to leave the state. It suggests, rather, that a drop in the number of tax returns with income greater than $1 million was due to the recession’s impact on people’s holdings. Using data from the state Comptroller’s office, ITEP found that the second highest tax bracket -- for incomes between $500,000 and $999,999 – saw a rise in returns, as did the bracket immediately below it. Since tax rates were raised on all three of these tax brackets in 2007 and 2008, ITEP states: “a far more likely explanation for the alleged disappearance of Maryland’s millionaires is that, for 2008 at least, they are no longer millionaires. Instead, their incomes may now fall in lower ranges of the distribution, thus potentially accounting for some portion of the increase in the number of returns in those ranges.” c
Other research suggests that tax changes alone have little, if any, impact on interstate migration trends. A recent study by the Harvard-trained economist Andrew Leigh, now a professor of economics at the Australian National University, found no significant relationship between income tax changes and migration patterns among U.S. states. According to Leigh, “…tax changes do not impact interstate population flows, nor do they affect the relative wages of movers.” As part of a broader examination of wage inequality and the extent to which tax structures are based on the ability to pay, Leigh analyzed migration patterns of workers along all points of the income scale. Published in the March 2008 edition of the National Tax Journal, his work concluded that people are not deterred from moving to states with tax systems under which upper-income residents pay more.d
Other studies have found that factors ranging from crime to climate play key roles in explaining state-to-state migration. For instance, Richard J. Cebula found that “non-economic factors play a very significant role in determining migration patterns.” Cebula examined the effect of both economic and non-economic conditions on interstate migration. According to his study, non-economic or “quality-of-life factors” explain much of the recent trends in cross-state migration. Recent migrants were shown to be attracted to states with large amounts of sunshine, warmer winters, and numerous state parks; the study also found that people were less likely to move to states where there are many hazardous waste sites and higher rates of violent crime.e
a Cristobal Young, Charles Varner, and Douglas S. Massey, “Trends in New Jersey Migration: Housing, Employment, and Taxation,” Princeton University, Woodrow Wilson School of Public and International Affairs, Policy Research Institute for the Region, September, 2008. Available on-line at www.princeton.edu/prior/.
b The California Budget Project, “The Number of High-Income Taxpayers Increased Significantly During a Period With 10 Percent and 11 Percent Tax Rates on High-Income Earners,” August 2008. Available on-line at www.cbp.org.
c The Institute on Taxation and Economic Policy, “Where Have All of Maryland’s Millionaires Gone?,” May 2009.
d Andrew Leigh, “Do Redistributive Taxes Reduce Inequality?” National Tax Journal, Vol. LXI, 1, March 2008.
e Richard J. Cebula, “Internal Migration Determinants: Recent Evidence,” International Advances in Economic Research, 11:267–274, 2005.
Long story short: Phil Mickelson is just another whiny, multi-millionaire Republican who has been paying record low taxes for the past decade and doesn't feel like paying a slightly higher rate now, one that would still be lower than the rate multimillionaires paid in decades past.
But we have to make sure that, whatever Mickelson does, the media remembers that it is a myth, a fantasy, that the U.S. or even individual states are going to lose people moving away to avoid a few percentage points in income taxes. The research shows that such a move is so rare as to be insignificant. The tax increases are necessary and will bring in the revenue needed to close state and federal budget gaps without further gashing needed services, education, or investments in infrastructure.
As on so many other issues, Republicans want to fear-monger the rest of us into doing things their way, to benefit the few at the expense of the many. Their most recent presidential candidate ran on just such an ideology. Thankfully, the American people knew better. That's why Barack Obama is beginning his second term. And on that note, Happy Martin Luther King Day, everyone!