
Where star scientists choose to locate: the impact of US state taxes - mcenedella
http://microeconomicinsights.org/star-scientists-choose-locate-impact-us-state-taxes/
======
saas_co_de
It is interesting that this is a summary of a published journal article and
yet suffers from a rather glaring flaw.

The paper looks at corporate and income tax but completely ignores sales tax,
so it treats Oregon as being the highest tax state (with a 9.1% income tax
rate, 0 sales tax) while a state like Texas is treated as a 0% income tax
state when it has an 8.25% sales tax rate for major urban areas.

Looking at their scatter plots the correlations they present look weak (the
summary doesn't provide the numbers) and there is no credible theory for
causation.

"Star Scientists" (defined as 99th percentile income earners, 300K+) don't
make location decisions based on taxes, they make decisions based on who has
the infrastructure to support their work and money to pay them.

Corporations might make decisions based on tax policy and they might have to
take employee income taxes into account when creating a competitive
compensation package for a high value employee, but one or two percentage
points on the salary of a few high end employees is not going to move the
needle on the overall corporate budget.

Obviously taxes are part of the big picture for corporations deciding where to
locate but they are probably not a big part. A state advertising low taxes may
be signalling that they are "business friendly" but they are also signalling
that they have an overall poor business environment and are desperate to get
people in the door.

Market theory suggests that taxes will adjust to an efficient level which is
the maximum that individuals and corporations are willing to pay to locate
somewhere. Consequently, you can judge that high tax states like California
offer the best environment for business because the market is willing to pay
their high taxes in order to locate there, while a hypothetical no-tax locale
would be the worst environment for business because even a small tax would
cause residents to leave.

~~~
briandear
Oregon is an outlier, but with other states: TX vs. CA, you have no state
income tax but you do have a sales tax while California has both. Property
taxes also matter; but CA property taxes are also higher.

Really what needs to be done is a measure of effective tax rates.

~~~
SOLAR_FIELDS
Are CA property taxes higher than Texas? This article says the effective tax
rate in Texas was almost double that of California’s two years
ago:[https://taxfoundation.org/how-high-are-property-taxes-
your-s...](https://taxfoundation.org/how-high-are-property-taxes-your-state/)

~~~
briandear
An interesting thought though.. if a 3 bedroom house in Cupertino costs $1.7
million and an equivalent house costs $250k in a Houston suburb. Then the
property tax in Cupertino will be vastly higher for the same amount of space.
While that higher housing cost is offset somewhat but a higher salary, that
higher salary also lands you with a higher income tax bracket and overall tax
bill, which means at the end of the day, your standard of living, your
disposable income is vastly lower in the Bay Area vs. Houston. You could argue
that Cupertino has better schools on average, but then again for the income
differential, you could afford Houston’s best private schools and still come
out ahead financially. The only objective reason to live in SV is because you
are required too — you work at Apple, Google, etc. If you are a startup
locating to locate somewhere, it’s a fallacy that you have to be in the
Valley. If your business is worth funding, being near Sand Hill is
unnecessary.

The ‘money’ is located in the Valley for sure, but remember those guys writing
the checks aren’t paying the same kind of taxes the employees are. While the
people that actually have to work at your startup are just scraping by despite
the high salary. I ran the numbers and it would be cheaper for me to live 2
hours from Cupertino, buy a Cessna and commute via 20 minute flight each way
than to live within 20 minutes drive — that cost difference includes buying
and maintaining the airplane, hangar costs as well as a cheap car kept at te
Reid airport in San Jose. Even having to drive occasionally due to weather
makes that idea still more reasonable.

A standard engineer salary in the Valley isn’t enough to buy a house unless
you win the equity lottery or save for 10 years for a down payment. Anywhere
where housing is 40-50% of salary plus high taxes is a recipe for disaster —
regardless of how many electric car charging stations or trains their might
be.

Obviously this is a tangential issue to taxes, however it’s still a vital part
of the calculus of being in SV.

I just wish I could commute to Nevada as that would be a huge savings, but a
bit of a stretch for a twice daily Cessna flight.

~~~
usaar333
California limits property tax annual appreciation however. Many of these
"star scientists" in CA might have bought 30 years ago and have a property tax
assessment on their $1.7M house of $250k.

~~~
SOLAR_FIELDS
From talking to coworkers there is such limitation but only to the point that
it can only go up 2% per year. I am guessing there is no other type of cap? In
Texas such cap exists for people 65 and older where their tax rates are frozen
in perpetuity. Does such cap exist in CA?

So putting aside inflation and the like, assuming value held constant wouldn’t
taxation property values “catch up” after many years? Or are there other
factors at play besides the 2% limit?

~~~
yonran
It’s common to see large disparities; from looking at a random street (Betlin
Ave, Cupertino) there is a house with an assessed value of $67k while Zillow
estimates its value at $1.7M. Assuming that inflation is ≥2% per year yet
property values are held constant, it would take 164 years for the assessed
value to “catch up” to market value. And the tax discount is not just for the
elderly. Children inherit their parents’ low assessment. The tax only jumps up
beyond 2% in a year when the owner renovates or sells the house.

The tax rate is around 1.25% (limited by Proposition 13 to 1%, plus slightly
more for infrastructure bonds). The low tax rate contributes to higher market
prices. Proposition 13 is a very good system for property investors.

~~~
SOLAR_FIELDS
Thanks for this. The deeper insight here helps to add more context to the
story of why the property values are so much higher in California than other
places.

------
TulliusCicero
Wow, the argument of the text is almost completely disconnected from the
title: it's ostensibly about where star scientists choose to locate, but in
reality talks only about where star scientists choose to _migrate_. These are
very different things.

If a star scientist chooses to remain where they began being a star scientist,
that itself is a decision. And it's an obviously important one: a high-tax
state may well be able to offset receiving migrating scientists if it creates
more in the first place.

The account for this, you'd want to look at where star scientists start out,
or simply look at per capita star scientists for each state. To ignore this
strongly biases the article in favor of low-tax states.

I suspect that in practice, high-tax states tend to have more star scientists
per capita than low-tax ones, simply because part of what they've done with
greater tax revenue is invest into higher education that helps create those
scientists. This would be not unlike how so many tech companies are
headquartered in high cost metro areas, because those areas are more
successful at creating those businesses, not at convincing businesses started
elsewhere to move there.

~~~
avs733
The conclusions seem explicitly misaligned with the title. The title implies
agency and choice, the conclusions don't come anywhere near making that
inference

Title: Where star scientists choose to locate: the impact of US state taxes
Conclusion: Overall, we conclude that state taxes have a significant effect on
the location of star scientists.

There is absolutely no causal link established in their data. They simply
hypothesize one and then use it as a title.

Edit: Its also a summary (by the authors) of an actual research article that
on a brief read is much more circumspect but still commits many of the same
logical sins
[https://www.aeaweb.org/articles?id=10.1257/aer.20150508](https://www.aeaweb.org/articles?id=10.1257/aer.20150508)

------
hidenotslide
This article leaves more questions than it answers.

Is top 5% of patents really a good measure of scientist productivity as
opposed to published articles or research awards?

Is outmigration more relevant than absolute residency numbers? If "top
scientists" choose to start their career in a high tax state and don't move,
they will not show up in this study.

What percent of this rather arbitrary group are professors, working at large
corporations, or some other affiliation?

What is the effect of outliers? No sample size is given and the individual tax
rate effect doesn't look very robust in the scatterplots. Does that fact that
a large amount of patent law gets set in Eastern Texas influence this more
than taxes?

Even for the corporate tax rate effect that does look like a positive
correlation, the effect could be due to one or a few large organizations
moving their R&D department.

This just seems like some half baked regressions that aren't seriously trying
to understand the issue.

~~~
Fomite
> Is top 5% of patents really a good measure of scientist productivity as
> opposed to published articles or research awards?

In my field, one can have a long, storied, and impactful career that ends up
with serious business national honors and never file a patent.

------
madhadron
Ha! Top scientists choose to locate where they can get positions. If you've
got some seriously fancy credentials, the Ivy Leagues come calling with big
salaries, but you don't get to choose what tax jurisdiction that's in.

~~~
charlesdm
> The Ivy Leagues come calling with big salaries, but you don't get to choose
> what tax jurisdiction that's in.

If multiple Ivy League schools come calling, this does offer you the
opportunity to pick the one with the most beneficial tax arrangement.

------
lukeschlather
They ought to say "prolific inventors" rather than "star scientists." Science
is only tangentially related to invention.

Also, a lot of star inventors deliberately choose not to patent their work.
Focusing on patents ignores people like Tim Berners-Lee whose work would have
pretty much been worthless if he had patented it.

------
roenxi
I need no convincing that decisions get made based on tax rates.

However, I call "correlation is not causation" on this particular article. It
is highly possible that tax increases and migration are both linked to some
third variable ('local conditions') and the /Testing the validity of the
results/ section of the article does not convince me that this possibility has
been ruled out. Establishing why there is a link here requires more
information.

I have observed that governments hate raising taxes because it upsets voters.
In practice, resistance to raising debt takes a back seat to upsetting voters.
If a government is raising taxes, in my experience, the economy is struggling
and making up the government budget with debt isn't an option (for whatever
reason). It is possible that rate of tax follows a similar principle where
prosperous regions need a lower rate to achieve a better result.

~~~
twoodfin
The authors note that shifts in migration patterns follow, rather than
precede, shifts in top-rate (but not middle-rate) taxation.

~~~
roenxi
Yeah, but that isn't actually very strong causative evidence. If there is a
confounding variable, maybe upending a scientists life and moving states takes
longer than than the legislature raising the tax rate. Maybe the tax change
compounds the impact of another variable and is followed by their relocation
(ie, the tax change contributes to the decision, but isn't the root cause).

The point is, "A causes B" is a much stronger statement than "A and B are
related". There is solid evidence of a relationship, because the core of their
study is a statistical test of correlation. The causative elements here are of
a speculative nature, because they didn't gather any data on cause. Cause is
being extrapolated from a correlation, which is dangerous thinking. The
conclusion here is a good one to be circumspect about.

------
youdontknowtho
Measuring the quality of scientist by how much money they make means that
there are no star scientists a universities doing research that's publicly
funded. (and making less while they do it.)

Libertarian studies be like: "Money makers making money want more money not
less. That's just science. You can't argue with science."

------
timthelion
Do those red lines actually correlate to the dots or did they just collect
noisy data and draw totally random lines? Analyzing the "Destination state"
and "Dest origin differential" it would appear that the drawn in red lines are
actually facing the wrong way. In the "Destination state" graph the trend is
strongly opposite to the line.

~~~
saas_co_de
The third chart on each line shows the relationship between tax level and net-
migration which what they are making their claims about.

The individual one (first line) looks like a shotgun blast to me but the
business one (second line) shows some correlation.

~~~
username223
If you trim the two outliers on the top right plot, it becomes a spherical
blob: [http://i2.wp.com/microeconomicinsights.org/wp-
content/upload...](http://i2.wp.com/microeconomicinsights.org/wp-
content/uploads/2017/11/image001.png)

microeconomics.org is owned by the "Institute for Fiscal Studies," a British
think-tank whose funders I haven't bothered to find. If you find the funders,
I suspect you can predict the red lines.

------
csdreamer7
Why are they only talking about income tax? Property tax is also a major
factor.

If you had two job offers 10 years ago: either CA (good area) or TX (Austin)
and got a mortgage. 10 years later Prop 13 would have severely limited the
property tax growth of your house while property taxes on a house in TX would
have ballooned.

Your taxes in TX would have gone up (and can go down) regardless of how much
you make. You can max out your 401K to further reduce your taxes in CA while
you really have no remedy in TX. CA encourages savers. TX often has to give
tax breaks (property and sales) to large companies to locate there. Small
businesses (grads starting tech startups that hire more grads) are left to pay
the very regressive taxes that hurt them in regressive states like TX.

I would also argue that research clusters (both universities and companies who
hire their grads) matter far more for grad job seekers than tax.

I really question if this article has any real value.

------
OliverJones
Conclusion: top 5% patent holders (== "star scientists" according to the
authors) in the private sector can be tempted to relocate from higher tax
jurisdictions to lower tax jurisdictions. It seems that a sustained multi-year
tax differential helps increase migration, because the subject people don't
respond right way.

------
megaman22
At the top end, these differences in state income tax make a big difference.
For instance, in a salary-capped league like the NBA, the difference between
signing a max contract with a Texas or Florida team (where there are no income
taxes), and teams in California, New York, or Toronto (to name some of the
places that take the biggest cuts) is really significant.

Even for us plebs, it can be a hefty chunk of change. Staying at the same job,
I moved across the border from Maine to New Hampshire, and instantly started
netting another $500 or so dollars a month.

[http://www.bankrate.com/finance/taxes/taxes-cost-
professiona...](http://www.bankrate.com/finance/taxes/taxes-cost-professional-
athlete.aspx)

~~~
krallja
Did your job change locations with you? If not, do ME and NH have a tax
reciprocity agreement? If not, you may be committing tax evasion.

~~~
megaman22
I always worked in NH, which has no wage income tax, but if you live in Maine,
you have to pay Maine income tax, whether or not that income was earned in
Maine. At least that is how the accountants have explained it to me.

~~~
krallja
Ah, yeah, I read it as moving from Maine to NH to avoid paying taxes on a job
in Maine.

------
acconrad
People don't make decisions in a vacuum. Scientists also care about their
children learning STEM, so they will want to live in places with good schools.
It's partially why they stay in Minnesota over Wisconsin, Massachusetts over
New Hampshire, and so on.

~~~
dsfyu404ed
If you're almost able to afford private school the extra money from not being
taxed into oblivion could allow you to justify the cost/benefit of private
school.

------
projectileboy
There are so many things wrong with this analysis that I wouldn't know where
to begin, except to say that I'm very disappointed to see this on the front
page of HN. Looking forward to the meta-analysis of papers addressing the
number of angels we can fit on the head of a pin.

~~~
avs733
yeah this is bad..bad bad bad...science

------
iskander
Having experienced the weakness of the scientific institutions in several low
tax states, I wouldn't expect this effect to be very strong.

