Urban geographer Richard Florida has famously argued that members of the “creative class” — scientists, entrepreneurs, artists and other professions who contribute disproportionately to economic growth — gravitate to metropolitan regions marked by the three “t’s” — technology, talent and tolerance. Now new research suggests that he may have to add a fourth “t” — taxes.
A National Bureau of Economic Research paper, “Taxation and the International Mobility of Inventors,” studies the effects of taxation on the international mobility of inventors, with an emphasis on the superstars who have the most, or most valuable patents. The results suggest that a 10 percentage-point cut in a nation’s top tax rates is associated with about a 1% increase in the number of domestic superstar inventors. The number is even higher for the number of foreign inventors — a 10 percentage-point increase drop is associated with a 38% increase for this group. Inventors who have worked for multinational firms appear to be most likely to respond to tax differentials.
Another study, “The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists,” finds that tax sensitivity is even greater when accounting for cross-state location of top corporate scientists in the U.S.; there is little effect on academic or government researchers. “Overall, we conclude that state taxes have a significant effect on the geographical location of star scientists and possibly other highly skilled workers. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that relative taxes matter.”
Sad to say, Virginia doesn’t even rank in the list of the ten states with the largest populations of star scientists. But if we’re serious about wanting to attract corporate research here, personal tax rates are a factor that must be considered.
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