Monday, July 22, 2013
Amy Hanauer and Tim Krueger argue that taxes play no role in taxpayer decisions to move from one state to another (The Tax Flight Myth: People Move for Jobs and Family, Not Taxes, State Tax Notes, July 8, 2013, p. 97 ... ). Their conclusions are apparently based on empirical studies and computer models. They are wrong. Based on my experience as a practitioner who works with wealthy individuals and corporations every day, I can assure you that taxes often play a major role in these decisions and that in many cases, they are the sole reason for the move. ...
The authors claim that they have been able to show the effect of taxes "while holding other conditions constant." How did they do that? Get real, folks. There are limits on what economists' computers can do. It is impossible to do this, no matter how many computer simulations one does. ...
My experience, and that of my SALT colleagues, is that taxes often play an important and decisive role in decisions to move from one state to another. Moreover, that is particularly the case for very wealthy individuals whose loss can be significant for a state. I am currently working with three wealthy individuals who have come to my firm for advice on how they can change their domicile from New York state to a low-tax state. When they do so, New York will lose between $70 million and $225 million in estate taxes (the variance will depend on which spouse survives the other). New York will also lose income taxes on their very substantial incomes. I assume that people in Ohio and other high-tax states are going through the same analysis. The issue with my clients is not whether to move, it is how to move so as to establish the change in legal domicile. We are going through the usual list of factors that the courts have considered in determining domicile (driver's license, club memberships, religious affiliations, civic activities, etc.). These people will move, and their moves will cost New York millions of dollars in taxes....
The economists can play all the number games they want to with their computers, their calculus, and their fancy equations, but they are still living in their ivory towers. The reality that my colleagues and I deal with every day is very different.
For a particularly timely example, consider yesterday's British Open champion Phil Mickelson: Forbes: Phil Mickelson Wins British Open---And California Taxes It:
- Golfer Phil Mickelson Plans 'Drastic Changes' in Response to His 63% Marginal Tax Rate (Jan. 21, 2013)
- Golfer Phil Mickelson Takes a Tax Mulligan (Jan. 23, 2013)
- Phil Mickelson and the Sports Star Tax Migration to Florida and Texas (Jan 28, 2013)
- 'You'd Be a Fool Not to Leave California' (Feb. 3, 2013)
- More on the California Tax Exodus (Feb. 7, 2013)
Prior TaxProf Blog coverage:
- NY Times: The Myth of the Rich Who Flee From Taxes (Feb. 17, 2013)
- WSJ: A 50-State Tax Lesson for President Obama (Apr. 21, 2012)
- WSJ: California, Other States Consider Tax Hikes on 'Millionaires' (Jan. 23, 2012)
- WSJ: The Price of Taxing the Rich (Mar. 26, 2011)
- WSJ: Oregon's Millionaires' Tax Drives Millionaires Out of State (Dec. 21, 2010)
- WSJ: Maryland 'Millionaire's Tax' Causes Decline in Revenue from Rich as 12% Flee the State (Mar. 12, 2010)
- WSJ: Soak the Rich, Lose the Rich (May 18, 2009)
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