Sunday, February 17, 2013
It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away. As Stuart Varney put it on Fox News: “Look at what happened in Britain. They raised the top tax rate to 50 percent, and two-thirds of the millionaires disappeared in the next tax year. Same things are happening in France. People are leaving where the top tax rate is 75 percent. Same thing happened in Maryland a few years ago. New millionaire’s tax, the millionaires disappeared. You’ve got exactly the same thing in California.”
That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.
Cristobal Young, an assistant professor of sociology at Stanford, studied the effects of recent tax increases in New Jersey and California. [Trends in New Jersey Migration: Housing, Employment, and Taxation. Princeton University, Policy Research Institute for the Region] “It’s very clear that, over all, modest changes in top tax rates do not affect millionaire migration,” he told me this week. “Neither tax increases nor tax cuts on the rich have affected their migration rates.”...
“I don’t hear about many billionaires moving to Moscow,” said Robert Tannenwald, a lecturer in economic policy at Brandeis University and former Federal Reserve economist. Along with Nicholas Johnson, he and Mr. Shure are co-authors of “Tax Flight Is a Myth,” a 2011 research paper. ...
Gregory Mankiw, an economist at Harvard, said that tax rates did affect migration, at least of certain groups. “Rich people can pretty much live anywhere,” he said. “If you’re a retired person trying to decide between Palm Beach and Santa Barbara, the tax difference between Florida and California is huge. If you’re an academic choosing between Stanford and Harvard, it might be a factor.” (Massachusetts has a flat income tax rate of 5.3 percent.) ...
Low-tax advocates like Mr. Varney point to Maryland as a prime example of tax flight. Maryland created a millionaire tax bracket in 2008 with a top rate of 6.25 percent. But a year later, the state reported that the number of millionaires filing returns had dropped by a third, and that total tax revenue from the group fell despite the rate increase. After a chorus of media criticism — “Millionaires flee Maryland taxes” (The Washington Examiner) and “Millionaires Go Missing” (The Wall Street Journal) — the state legislature let the increase expire in 2011.
But a study by the Institute on Taxation and Economic Policy, a nonprofit research group in Washington, found that nearly all the decline in millionaires was the result of a drop in incomes largely attributable to the stock market plunge and recession, and not to migration — “down and not out,” as the study put it.
(Hat Tip: Mike Talbert.)