Case study: Inventor innovation and tax rates

By definition, immigrants are highly mobile, and the smartest ones are probably going to have a choice of where they do their best work. They are probably always going to choose a modestly taxed country to base themselves in – after all, there isn’t much point of doing all the work of creating a new product if the government is going to confiscate half of the wealth it creates.


There is a little shirtiness in there too, for good measure.

Most analysis of the impact of high top rates of tax looks only at the amount of revenue collected, and the incentives to work more or less. But the greatest damage may well come from destroying innovation, and that is not going to be easily captured by that kind of data. …There will be a loss, however – and an even greater one once you take account of the British inventors who move abroad. At 45pc, we still have one of the highest top rates of personal tax in the world. If a lower rate made the UK a magnate for global inventors, then we’d all be better off very quickly – even if there was some short-term loss of revenue.

It’s a simple question: Who does your country value?
The hardworking producers who make your life easier or the envious socialists who want to tax capitalism so hard it becomes impossible, because if they fail, everyone else must?

But top tax rates will make a significant difference. The new paper for the NBER by Ufuk Akcigit, Salomé Baslandze and Stefanie Stantcheva took data from the World Intellectual Property Organization from the 1970s onwards, and looked at the impact of higher top marginal tax rates on the numbers of patents filed. [DS: good methodology] It placed particular emphasis on ‘superstar’ investors – that is, those with the greatest number of patents, and the most valuable ones. It found that higher taxes meant fewer patents and vice versa.

Paper record here:
Remember, patents are filed with government. The policies of the government and treatment therein (red tape) will either encourage OR discourage, there is no neutral because the process is already difficult and expensive. Two papers on the subject, actually.

If inventors and scientists are important contributors to economic growth in their state or country, then their migration in response to tax progressivity is a potential cost of such a policy. These studies may provide broader insights if the mobility of highly productive inventors sheds light on how taxation affects the location decisions of other educated, talented, high-earning workers.

If you welcome the Boat People (criminals) and shun the high-tech job creators, frankly, your society deserves to die a long and painful death from terminal stupidity.

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