Raising Taxes On The Rich Won't Change Their Behavior: Study

The rich are responsible for creating most of America's jobs. Raise their taxes and many of those jobs will disappear -- so say the rich, anyway.

Problem is, that might not be the case. When it comes to taxing the rich, there may actually be room to do a lot more, according to a new study from a professor at the University of Massachusetts, Amherst.

The study, from assistant research professor Jeffrey Thompson at UMA's Political Economy Research Institute, argues that even when the government imposes higher taxes on wealthy people, most of them carry on with their lives as they did before.

They don't pick up and move to states where the tax rates are lower, the study claims. They don't cut back on their hours at the office in a way that might cause economic growth to slow and they seem just about as likely to invest money in new business ventures.

Basically, the report suggests that when the rich pay more a bit more in taxes, the economy doesn't really suffer at all.

Thompson isn't the first to reach this conclusion. Analysts and financial professionals generally agree that raising tax rates on the affluent is unlikely to have much of an effect on their spending and investment patterns. As recently as last month, the National Bureau of Economic Research released a study arguing that taxes have little bearing on the kinds of consumer decisions that cause the economy to move.

Such research only seems to bolster the arguments of people like Warren Buffett, the billionaire financier who has repeatedly called for a tax code that would impose higher taxes on the wealthy.

It's an idea that can hardly be called unpopular. President Obama included a like-minded measure in his latest budget proposal, and proposals to tax the rich more have earned considerable approval among both the general public and the rich themselves.

The question of how much the rich should be taxed is only likely to take on greater urgency as lawmakers scramble to find a way to close the $1.1 trillion federal budget deficit. What the wealthy pay in taxes seems to have a direct bearing on this: A recent analysis from the National Priorities Project found that tax breaks for the richest 5 percent of Americans are costing the U.S. Treasury about $11.6 million every hour.

Want to know what the super-rich do for a living? Here are the most common occupations of the 1 percent:

Loading Slideshow

• 10. Business Operations (Nonfinance)

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 3 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 2.4 percent

• 9. Real Estate

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 3.2 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 1.9 percent

• 8. Blue Collar Or Miscellaneous Service

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 3.8 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 4.2 percent

• 7. Skilled Sales (Except Finance Or Real Estate)

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 4.2 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 4.6 percent

• 6. Not Working Or Deceased

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 4.3 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 5.2 percent

• 5. Computer, Math, Engineering, Technical (Nonfinance)

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 4.6 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 3.8 percent

• 4. Lawyers

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 8.4 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 7 percent

• 3. Financial Professions, Including Management

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 13.9 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 7.7 percent

• 2. Medical

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 15.7 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 16.8 percent

• 1. Executives, Managers, Supervisors (Non-Finance)

  <strong>Percentage of top 1 percent with occupation in 2005:</strong> 31 percent <strong>Percentage of top 1 percent with occupation in 1979:</strong> 36 percent

Comments

[politicaltimes]

04:18 AM on 08/23/2012

Can Taxing The Rich Save The U.S. Economy? A must watch!
http://www.youtube.com/watch?v=QVr-31OeRSY

[Pediego]

03:46 PM on 04/13/2012

Let's have the republicans 'take our country back' 'take America back' to pre Bush years with the tax rates that were applicable then. Everything was booming then and everyone was happier.

[Gypsyflame]

08:28 PM on 03/28/2012

The notion that "rich" people use their personal income to create jobs is complete nonsense. Why anyone would believe that is amazing. Personal income is not the same as business income. Good grief.

[MansfieldX]

06:58 PM on 03/31/2012

You are flat out wrong. I am currently in the process of starting a business in Miami, Florida. This is a company that should be started in LA, California but no way am I moving there. And guess what? The ENTIRE seed money is coming right out of my pocket. Liberals are such loons and I pray that Romney is elected to get these jokers out of office. And as a foot note: Taxes may not necessary change the behavior of people already in business but where are the stats for business starting in California? Anyone starting a business there is not too quick.

[Gypsyflame]

07:41 PM on 03/31/2012

Then you need to talk to a lawyer and get your business set up properly. Your personal income should be separate from your business income and starting a business is not the same as hiring employees once your business is up and running.

[fried52]

12:01 AM on 04/06/2012

CA is the most populace state in the union schmuck. Based on what I've read of this thread you might be better off planting your seed capital in a savings account.

[basta]

04:55 PM on 03/28/2012

In order to reduce taxes, companies generally reinvest their "profits" into the business, creating more growth, more jobs. This process is encouraged by high tax rates. Therefore, high tax rates will add to growth. In the 1950s, personal income tax for the wealthy was 90% and growth was at very high levels.

[vidtrainer110]

02:42 PM on 03/28/2012

I run a small business. I didn't know that the criteria for being in the 1% was only around 400k per year, but I am in that category. That said, Mitt Romney made more last year than I am likely to make in my lifetime.
Regardless, I don't make hiring and investment decisions based on the tax rate (in terms of my business) I make it based on demand for my services. If my tax rate were raised 5% or 10% my behavior wouldn't change. If I can make more money and have the necessary demand, I make the investment.
Another nutty myth is that somehow rich people will stop working as hard if they are taxed more. I have never met a rich person (business leader, high end salesman, entrepreneur, even a trainer that made more money than I thought possible in that industry, imagine training for roughly 1M per year!) that thinks that way. Can you imagine this: Today I woke up and realized my taxes are too high...that's just not fair, I am going back to bed. Riiiight.

[Miss Muffett]

02:52 PM on 03/28/2012

Thanks for this anecdote! I've incorporated 2 businesses in the last 5 years and am in the process of shutting the older one down and going a different direction. Point is - any small business owner should be able to say the same - I've never met anyone in my field whose main business problem is taxes. It's lack of demand, for heaven's sake!! I don't care if the tax rate is 80%, so long as I have people coming through my doors, it doesn't change a thing. That's been the massive problem with this recession. It's a demand-side problem and a bunch of conservatives insist we apply supply-side only solutions to fix it. Well, no wonder it isn't working.

[Appleblossom]

09:55 PM on 03/28/2012

*would go patronize your shop if she could*

Well said.

[Brian Hanley]

01:42 PM on 03/28/2012

Well, this study is mealy-mouthed in its conclusions, unwilling to go back and observe patterns of money in former times when tax rates at the top were high. Ignoring that, correlation is quite clear that higher total tax as percentage of GDP is linked to higher employment and higher economic growth. A recent paper by Filip Spagnoli shows this in his March 27th paper, "There’s No There There: Low Tax Rates and Economic Growth".

[blindleadingtheblind]

01:35 PM on 03/28/2012

Hmmmmm....what if we all researched what these individuals did to attain this level of success and imitated it. Naw, lets just protest them. Not to mention that, it is ironic that the administration and likeminded liberals assume there is govt revenue loss due to lack of taking someones money. Insane. How about we get an administration that makes some semblance of management and decrease govt overhead spending. 10% Public salary cut across the board. So a career Fed agent who has made like 4 arrests, and makes 100,000 gets 90,000 instead. My company has done it, many other private companies have done it also. Eliminate some overhead structures, absorb the well performing employees in other organizations and cut the nonvalue added ones loose. There are like 35 Federal Law Enforcement Agencies.............That is ridiculous. There should be a collective "WTF?" in congress and the administration. There should not be one drug dealer, terrorist or child molester left in the world...... You dont' need NASA moon rock police....unbelievable....

[TickedatTaxBreaks41per]

10:16 PM on 03/28/2012

I think you SHOULD research what some of these individuals have done to attain their level of success. Some worked hard and smart, and I applaud them. Those are the same people, usually, who are fair in their dealings with employees and public. But let's face it. Some just tromp on the heads of others with their golf cleats, cheat others out of their pensions, and play with Ponzi scheme money while living lavishly on fraud. But as to a fair tax rate, they should not be allowed tax loopholes not available to the "lesser" of us, and offshore accounts should be illegal. Less than 1% of this country offers to give up life and limb in two Bush wars, and the top 1% needs to offer back those tax cuts to help pay for the war debt, Wall Street bailout that again, benefited the wealthy, caused by nothing but fraud and greed to begin with, and all I hear from conservatives is "cut entitlements." Well, I agree. Cut entitlements to the "entitled." I can see why you call yourself 'blind leading the blind.' Blind obeisance to the kings.

[StopMakingSense2]

12:25 PM on 03/28/2012

The rich will behave badly regardless of their tax rates. A poor man wants to be rich. A rich man wants to be king! Same as it ever was!

[Miss Muffett]

11:18 AM on 03/28/2012

It's not ABOUT changing their behavior. I could care less how much money they make, what they do in their jobs, how they live in their personal time - all 100% irrelevant. 

What it IS about is ripping off the people who helped make you that money. They said jump, we said how high, and they pocketed nearly every single cent of the value of our increased productivity on an arrogant and entitled basis. This pathological hoarding of money is now causing broad economic and civil unrest and STILL they pay our legislators to block policies that are attempting to pick up after these jerks. 

The requirements are simple, 1%:

- When we make you more money, give us a raise or small bonus so we can feed our kids.
- Provide humane working environments in which we can help make you money.
- Get your money out of our governing system.

After that, I don't care if you use your billions to buy a fleet of heavily armed unicorns to take over the moon. Stop using your wealth for destructive purposes and biting the hand that feeds you. That's all.

[nothingchanges]

10:04 AM on 03/28/2012

We will probably never know the answer to that question.

As long as it remains cheaper for the wealthy to buy congress people, then it is to pay taxes, that's what they'll do.

Without campaign finance reform, this issue is not going away.

When money "buys" our elections, money wins.................................WE lose.

[alunsulen]

04:40 AM on 03/28/2012

If we snuff out the liberals, the economy won't suffer either. I guess that makes it fair.

[evilgoogleman]

05:46 AM on 03/28/2012

Or puppies or babies or the mentally handicapped... Yeah, you are a riot.

[joeisright]

08:03 AM on 03/28/2012

puppies?

[forestnfama]

06:16 AM on 03/28/2012

I always wonder how a person could be so proud of their ignorance.....and hypocrisy.....and greed, and hate......... conservative Christians.......what a laugh......

[J T K]

03:37 AM on 03/28/2012

I still don't get how Democrats can't admit that punitively taxing the rich for being rich isn't redistribution. In a fair society you'd tax people based on what they take from society. On some counts that is easier than others, notably roads which could be usage taxed (if the privacy concerns can be worked out) and public transportation.

Our system is based on what you achieve from society even if you use the same amount of common resources. To use a single data point, if two traveling salespeople drive the same on a road but one makes more money than another selling his or her wares then the more successful one pays more for using the same resource the same amount. I'd be interested in how the far let liberals defend that as being fair.

[NorquistNemesis]

03:57 AM on 03/28/2012

"tax people based on what they take from society"

The most well off take more of society's resources than the average schmo.

[J T K]

04:37 AM on 03/31/2012

Do you have anything to back that up? I have quite a few examples where poor people take more from society and where the rich seemingly take more but also pay more in fees to do so which covers the increase.

[evilgoogleman]

05:54 AM on 03/28/2012

A more successful salesman in your scenario, is seeing more clients, using the roads more, his shipments to the client uses roads, etc. He is using more of everything, in this country that many pay taxes to make function, the country that makes his success possible.

[J T K]

04:36 AM on 03/31/2012

That is making an unfounded assumption though. Why not tax the successful business person more per shipment or more per truckload instead of our current system? That would at least accurately tax the more successful person for what he or she is actually using for his or her business, rather than assuming that he or she is using a specific amount and/or deserves to have to subsidize a specific amount of use.

[rwaller]

12:57 AM on 03/28/2012

How do the rich respond when their taxes are raised? What a stupid question. They hire more attorneys to find or create the loop holes so that it won't actually happen.

[jondekonkeroo]

03:42 PM on 03/28/2012

that's a guess. history gives us the answer.

When roosevelt raiset marginal rates on discretionary income, it was reinvested, and the middle class was born.

Reagan ended that in 1981 and it's been downhill ever since. now six people have more wealth than a third of america and half of america is too poor to pay taxes.

that's what happened when we deregulated. now we have the worst income disparity on the planet after Uganda.

republicans are truly the third world party. uganda?

[rwaller]

03:49 PM on 03/28/2012

I know!!!!!!!!!!!

[JScott]

12:40 AM on 03/28/2012

Explain why there are lotsa millionaires and billionaires in 'high' tax states like Ca. and NY and they don't move in droves to places like Alabama or Misssissippi or Northern Marianas or Puerto Rico. Oh and they 'park' their money offshore in places like The Nethelands with it's generous social welfare liberal policies and higher tax rates etc.

[JScott]

12:37 AM on 03/28/2012

You just know there's some Koch minions commenting the usual lies here.

[rwaller]

01:21 AM on 03/28/2012

Because they move their enterpises off shore and live her essentially tax free taking advantage of all the infrastructure that the tax payer has provided. Then, once every 7 years the republicans start pushing their: if we let them bring the money home TAX FREE they will invest it here. The last time resulted in one of the largest exoudous of American jobs in history.

[NorquistNemesis]

04:24 AM on 03/28/2012

Unfortunately, Cons don't allow historical facts to influence them.