A common argument against increasing taxes on high earners is that the wealthy will simply flee a state that imposes higher taxes on them. But is it true? Rather than leaving that claim in the realm of speculative and often politicized debates about policy, sociologists Cristobal Young and Charles Varner and economists Ithai Lurie and Richard Prisinzano approached this as an empirical question that could be answered with existing data.
Make that a massive amount of existing data: The researchers analyzed the tax records of every million-dollar earner in the United States between 1999 and 2011—some 45 million tax records in all. They looked for any “pattern of millionaires moving from high-tax to low-tax states” and compared how likely millionaires are to move states with how likely the general population is to do so. They also examined the borders of high-tax and low-tax states to see if millionaires clustered on the low-tax side of a border.
The research team found that high-income people do pay attention to tax rates when making decisions about where to move.
“[T]here is an observable pattern of elite migration from high-income-tax to low income-tax states; when millionaires migrate, their relocation decisions are influenced by tax rates, in a way that we do not see for the general population,” they write. However, that’s not the whole story. While millionaires—in particular those who earn $1 million or more year after year rather than just once or twice—pay attention to tax rates when they move between states, they’re less likely than less-wealthy people to move between states to begin with.
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One state is key to the finding that millionaires migrate to lower-tax states: Florida. The researchers tested this with a statistical model that excluded Florida, finding that “outside of Florida, differences in tax rates between states have no effect on elite migration.” This raises the possibility that Florida’s lack of a state income tax is not the only—or possibly not even the primary—reason for high-income people to move there.
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The possibility that high earners will move in response to tax increases is a significant policy concern. If increasing taxes on the wealthy is intended to raise revenue for local and state governments, an increase that causes the targeted high-income people to leave could be counterproductive, lowering total tax revenue. Young, Varner, Lurie, and Prisinzano conclude that “[m]illionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.” This means that “state—and by extension, national—governments have considerable leeway for independent tax policy” and don’t need to worry that taxing the wealthiest people will be counterproductive.
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