By Robert Wallace
One short explanation for why the United States is in the financial hole we’re in is that politicians promise to give everyone everything while not raising taxes, but not that the financial collapse has depleted government coffers state governments and the fed are looking for new sources of revenue. The problem with just raising taxes – especially at the state level – is that not only do you depress business but you also chase people and businesses out of your state. So the question becomes one of mobility: who has an easier time “voting with their feet” by leaving if they don’t like changes to local laws.
Ilya Somin has an interesting piece at the Volokh Conspiracy addressing just this question. Here’s the conclusion that he reaches:
However, the much greater difficult of moving when you own a lot of stuff is an additional reason why voting with your feet is often easier for the poor. My experience is far from unique. Studies by economists find that homeownership (a proxy for wealth and possessions), tends to reduce labor mobility significantly. Another way of putting it is that the relatively high moving costs faced by the affluent make it less likely that they will move to a different jurisdiction to take advantage of its superior policies, unless the superiority is very great. The poor, by contrast, can often move to exploit relatively smaller interjurisdictional differences.
Obviously, if your wealth is really great, you can to some extent reduce the pain of moving by paying people to do everything for you.
I agree with the conclusion, but I want to take it a step farther. The middle class is supposed to be the sacred cow of American politics. Every politician promises to protect, enshrine, and expand the middle class, and every politician promises that – no matter what – they won’t raise taxes on the middle class.
But when desperate state governments look for new sources of revenue – where are they going to turn? The extremely rich can offset the costs of moving by hiring folks to do the hard work. The poor folk – who can be targetted for taxes without political danger as long as the regressive taxes are disguised (like taxes on cigarettes or gasoline) – can also up and leave. But where are middle class folks – especially upper middle class homeowners – going to go?
Even worse are the small business owners. These guys often get classified as rich because their company income can be counted as “salary” for tax purposes, but frequently make less in take-home cash than even the middle class. And if you think moving your house is hard, try moving all of your customers homes!
The same basic principles apply at the national level. While people aren’t as likely to move to new countries, the fact is that the poor and the very rich have the easiest time hiding their income and assets, while the middle-class and especially small business owners have the hardest time.
No matter what Obama and the Democrats may say about keeping their hands off the middle class, the fact is that from a tax perspective we’ve all got big targets on our backs. If Obama is going to even make a serious effort to try to pay for all this revolutionary reform he’s got in mind, he’s going to come knocking on middle-class doors to pay for it.
Because he knows we’ve got nowhere to run and nowhere to hide.
Robert Wallace is classical liberal and a devout Mormon. He is currently studying economics in graduate school. He and his wife work as business analysis consultants, and they live as undercover conservatives with their two small children in a liberal bastion of a college town. He has been writing for America’s Right since December 2008.