December 23, 2010

The Wall Street Journal and "Missing Millionaires": Evolution of a Lie

We've all heard Mark Twain's quip that "there are three kinds of lies: lies, damned lies, and statistics." For those of us who think accurate statistics need to be a guidepost for sound economic policy, this line rankles a bit-- if people distrust all statistics, then how can we ever gain popular support for sound policies? But it's much easier to understand why Twain's putdown rings true with so many Americans when you read the latest anti-tax diatribe from the Wall Street Journal's editorial board. In an editorial about the alleged disappearance of Oregon's upper-income taxpayers in response to a recent tax hike, they trot out this old chestnut:

All of this is an instant replay of what happened in Maryland in 2008 when the legislature in Annapolis instituted a millionaire tax. There roughly one-third of the state's millionaire households vanished from the tax rolls after rates went up.
The Journal first broke this story in an editorial in May of 2009, when they breathlessly declared that "[o]ne-third of the millionaires have disappeared from Maryland tax rolls" between 2007, when the state increased its top income tax rate on high-income families, and 2008. This was, as it turns out, not even close to true. A report from the Institute on Taxation and Economic Policy, published a few days after the Journal's editorial, showed that in fact, the most likely explanation for the decline in the number of Marylanders with taxable incomes over $1 million during this period was that they stopped being millionaires: while preliminary data available at the time did show the number of millionaire filers dropping by 13% between 2007 and 2008 (far less than the "roughly one-third" claimed by the Journal), the same data also showed a sharp increase in the number of filers earning less than $1 million, and a net increase in the overall filer population.

To be clear, the data available at the time couldn't be used to say anything definitive about what really happened to the missing millionaires-- all anyone really knew is that they had either gotten poor, or moved, or died. But the fine folks at the Journal were all too happy to give the impression that nearly a third of the state's millionaires had hopped a Lear Jet for Florida. And dozens of prominent and less-prominent blogs and news outlets obediently repeated the "one-thirds" claim as indisputable fact.

Almost a year later, in March of 2010, the Journal swooped in for another driveby lesson in supply-side Maryland economics. This time, their claim was understandably less bold:
One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008.
One-in-eight is 12%-- so the good news is that they were now at least using the correct number ITEP had identified a year earlier, in lieu of the clearly-inaccurate "one third" figure. But the bad news is that by this time, the bean-counters in Maryland's tax-collection agency had released revised numbers which showed quite clearly what had really happened to upper-income filers during the year in question. And again, an ITEP report gave the real scoop: in fact, of the millionaires who filed as Maryland residents in 2007, just 6.8 percent had not filed as Maryland residents in 2008, far below the 12% figure the Journal was reporting (and, of course WAY below the "one-third" figure the Journal had originally touted).

6.8% of millionaires is still bigger than zero, of course, so that might seem like a problem. But, as the same ITEP report noted, you could sensibly ask what amount of millionaire mobility was normal in Maryland in the pre-income-tax-hike years. The answer: in the seven years before the enactment of the tax hike in question, an average of 5.6 percent of Maryland’s millionaire filing population moved out from one year to the next.

So after all that brouhaha, the "smoking gun" in Maryland was that in a normal year, 5.6 percent of Maryland millionaire filers move, or die, or for other reasons stop filing in Maryland. In the year following the income tax hike, that number nudged up slightly to 6.8 percent.
Which meant that at most, what the Journal was fussing about was 1.2 percent of Maryland millionaires.

This question stopped being interesting for Maryland policymakers earlier this year when they decided to allow their high-end income tax hike (which was temporary) to expire as scheduled.
But it became interesting to the Journal again when another state, Oregon, enacted similar legislation. And so it happened that in an editorial ostensibly analyzing the impact of Oregon's proposal on the number of millionaires in that state (which ITEP, clearly irritated at this line of argument, promptly took apart here), they slipped in the old "one-third" canard to bolster their claim that mass millionaire migration is the inevitable outcome of hiking state income taxes on the rich. Here it is, one more time:
All of this is an instant replay of what happened in Maryland in 2008 when the legislature in Annapolis instituted a millionaire tax. There roughly one-third of the state's millionaire households vanished from the tax rolls after rates went up.

And, because the Wall Street Journal said so, once again a drumbeat of "blogs" and tweeters have echoed the totally-false "one-third" claim.

Some statistics are accurate. Others are misleading. And others are simply, demonstrably, wrong. The Journal's mystifying insistence on repeating an assertion that they've previously acknowledged was wrong could just be the result of an early holiday vacation for the fact-checking crew at the WSJ editorial board, if any such crew exists. But it's uncontestably what Twain would have called a "damned lie." Hopefully policymakers in Oregon (and Maryland) will recognize it as such.