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People are dynamic, not static

Burt Folsom:

The Wall Street Journal reported a strange mystery in May, 2009: about one-third of the 3,000 millionaires in Maryland had disappeared. … The recession no doubt contributed somewhat to this vanishing act, but there is more to it. Governor Martin O’Malley had supported a hike in Maryland’s progressive income tax in 2008 because these rich guys were “willing and able” to pay it. …

The soak-the-rich crowd always assumes a static model of taxation: if a state makes, say, $10 billion in income taxes from millionaires and if you raise the rate on them three percent, the assumption is that you will take in another $300 million, because that amount is three percent of $10 billion.

More at The Case of the Missing Millionaires.

Last week President Obama dismissed the dynamic nature of human behavior, saying “But, what I will not do is to have a process that is vague, that says we’re gonna sort of, kind of raise revenue through dynamic scoring or closing loopholes that have not been identified.”