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.