Evidence of a “Brain Drain” from countries with high top tax rates and a “Brain Gain” to countries with low top tax rates comes from a new National Bureau of Economic Research paper by Ufuk Akcigit, Salomé Baslandze and Stefanie Stantcheva.
The authors study the flight paths of successful inventors who emigrate from one country to another, and estimate that for the eight major countries that account for 89 percent of patent filings, a 10 percentage point drop in the nation’s effective marginal top tax rate would induce the immigration of 38 percent more foreign elite inventors and allow the country to retain 1 percent more of its own domestic elite inventors.
The paper defines a superstar inventor as the top 1 percent of patent owners ranked by citations their patents receive in later patent filings. They also consider the number of patents an inventor has, average citations per patent, and maximum citations for a patent. Their results stand up robustly in each case.
In the United States they find that a top tax rate drop of 10 percentage points would likely attract 23.7 percent more foreign elite inventors.
So, why do we want more foreign innovators to come to the United States? Two reasons:
-
Successful inventors living in the U.S. have positive effects on productivity, boosting wages for Americans.
-
Inventors and other high earners create jobs directly by hiring people as employees, but also by buying goods and services from people of all walks of life, increasing overall demand.
Past immigrant inventors include Alexander Graham Bell, James L. Kraft and Charles Simonyi, the Microsoft Office innovator. It is in their spirit that tomorrow’s geniuses will also come if top tax rates are cut.
The bottom line is tax rates matter. Just as a resident of a neighborhood chooses a low-cost grocery store over a high-cost grocery store, inventors with a history of success are likely to want to live in a country that allows them to keep more of their own money.
That money, left in the hands of a highly innovative inventor who moves to or stays in the United States, will generate more wealth and opportunity for all Americans.