public policy

UMass: Negative effects of raising taxes overblown

Posted 3/8/12

AMHERST, Mass. – A group of University of Massachusetts researchers have concluded that the negative consequences of raising state taxes on high-income people are overblown.

A paper from the UMass Political Economy Research Institute released Thursday says proposals like the labor-supported Rhode Island bid to raise income tax rates on households making more than $250,000 per year do not cause the rich to work significantly fewer hours, start fewer new businesses, seek new tax shelters or move to other states.

“There’s a lot of politicized rhetoric about what could happen if states moderately raise their tax rates for their wealthiest citizens,” said UMass assistant research professor Jeffrey Thompson, author of the study. “But the reality, based on very clear data, is that the end result will be more revenue in the state coffers to pay for public services. None of the scare stories - people fleeing the state, people stopping work, or not starting new businesses - have been shown to happen in the past, or are likely to happen now.”

The study says that effective income tax rates for the wealthiest 400 Americans fell 8 percentage points between 1992 and 2008, giving the wealthy “more disposable income than at any time in history.”

The study says the income tax increase proposed in Rhode Island, which has not drawn support from leadership in the General Assembly, would generate $11 million for the state.

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