You changed the argument. You’re not talking about the overall tax burden, you’re talking about the tax burden on high income individuals. Taxes in the U.S. are low as a percentage of GDP in part because the poor and lower middle class pay very little in tax compared to many other countries - the lack of a VAT and the huge number of tax credits and tax breaks for families, home ownership and other activities have driven effective taxes way down for the bottom half of the population.
Do high tax rates cause wealthy people to move to lower-tax jurisdictions? Of course. All you have to do is look at the movement of people within the U.S. from high-tax states to low tax states to see this pattern. In Canada, when our taxes were much higher we had constant articles in the papers about ‘brain drain’ - people who expected to make very large incomes would leave Canada and move to the U.S.
But the people themselves don’t have to move - they can just move their income-generating activity out of the country. GE and other big corporations pay a lot less in effective taxes than the tax rate would indicate, and one of the primary ways they do that is to move production offshore, then leave the profits offshore as well because they are only taxed on the profit when it comes back into the U.S. So many big companies have massive cash accounts sitting in overseas banks.
Another factor that will drive businesses and capital out of the U.S. is the immense size of the debt. Anyone planning for the long term (and businesses plan for the long term as well as the short term) has to consider that at some point, all that deficit spending has to be stopped, and when that happens taxes will have to be increased to pay down the debt and maintain the level of current services. Or, the U.S. will maintain the debt, and that will cause the U.S. economy to grow at a lower rate than other countries like Canada, which will in turn cause its standard of living to lag and you’ll lose people that way.
In Canada for example, when our debt was up around 70% of GDP our interest rates were about 2 percentage points higher than the U.S.'s, and our dollar was 20% lower. The net result of that was a reduction in growth and a hit to our standard of living compared to Americans. That in turn caused some Canadians to emigrate. Now the situation is reversing itself because we took the initiative to get our fiscal house in order over the past twenty years.
If you’re worried about people leaving the country because of high taxes, don’t look towards Europe - look towards Canada, which is the obvious place such people would go. We’re your main competitor for people, your main trading partner, the biggest source of your imported oil, etc. Our culture is almost the same, we have open borders, and people who emigrate to Canada can easily travel to and from the U.S. to visit relatives or maintain business activity or whatever.
In my opinion, Canada is poised to trade on some very significant advantages we have over the U.S., which includes a less progressive tax system and lower taxes on corporations and high income individuals. Right now we’re pretty close to you - within a couple of percentage points in most measures - but that gap is going to widen substantially over the next few years as you tackle the major shortfalls in your entitlement programs and the debt.
Canada’s top federal marginal tax rate is 29%. Our corporate, capital gains, and dividend taxes are all lower than yours. We have no estate tax. Provincial taxes are typically a bigger slice of the overall tax pie than state taxes in the U.S., so in some provinces like Quebec taxes are still significantly higher than they are in the U.S. for upper-income people. But in other provinces, that’s not the case.
Here in Alberta we have a provincial flat tax and no sales tax, and our overall tax burden here is lower than in any other jurisdiction in North America. If you insist on cranking up the taxes on the rich by a large amount, I fully expect to see some immigration to Alberta and Ontario from the U.S., and I expect to see more U.S. businesses set up offices and factories in Canada to avoid U.S. tax. That’s exactly what happened in reverse when the U.S. had the tax advantages, so I don’t see why it wouldn’t happen again, only this time in the other direction.