…and my goodness, if Rush Limbaugh can get it, there is hope for everyone else. (Sidenote: I really hope that that hyperlink was gratuitous and completely unneccessary, as I would think that my audience has not been living under a rock. I also find it funny that his Wikipedia page currently has the “The neutrality of this article is disputed” warning on it. Shocking.)
As an economist, I really do believe that money makes the world go ’round. I would even go so far as to say that in a lot of cases money can in fact buy happiness, since it’s really damn hard to be happy when you’re stressed about money all the time. (That’s the grad student in me speaking. I might also give a nod to Stephen Colbert on my Facebook profile where I list my religious views as “Moneytheism”.) So if you take the fact that money makes the world go ’round and add it to Economic Principle #4: People respond to incentives, it should not be surprising that Rush Limbaugh would say something like the following:
“Personal income taxes for the uhh…upper middle class and the rich are about to skyrocket 31 percent for all New Yorkers making more than $500,000 a year. So I’ll tell you what I’m gonna do, I’m gonna look for an alternative studio somewhere outside New York. I’ll sell my apartment, I’ll sell my condominium, I’m gonna get out of there totally because this is just absurd, and it’s ridiculous…”
So economists have two phrases that are relevant here: “vote with your dollars” and “vote with your feet”, and Rush is literally threatening to do some of each. If you think about it, there is a bit of a “consent of the governed” dilemma going on here, since those people who accept the higher taxes and don’t move, assuming that moving isn’t prohibitively costly, are implicitly accepting the new policy. So sure, why wouldn’t a government raise taxes if it didn’t have to suffer any negative repercussions?
In reality, the government doesn’t get a free pass with tax policy. If nothing else, the increase in taxes gives people a disincentive to work (there is disagreement on how large this effect is), and if people don’t work as much, the government doesn’t have as much of a base to tax from. This brings us to our friend the Laffer Curve:
So, up to a point, the increased tax rate more than compensates for people working less, but once you go beyond a certain point it’s a lose-lose situation. Now, if you added the possibility of people moving out of the jurisdiction altogether into the model, the tradeoff would be more in favor of the people (i.e. lower taxes, at least at a city or state level). Also, if people explcitly thought about their incentives, their decisions might be more in line with what Rush Limbaugh is suggesting. As a result, if governments actually thought that people were going to act like Rush Limbaugh is suggesting, then they might be more careful about the reactions to their policies.