Millionaires Don’t Move to Avoid Taxes – Empty Threats

I’ve commented on this before, but it’s worth repeating.  Millionaires, despite all their bluster and threats to move when taxes are raised, simply don’t move.  It’s empty threats.  If income tax rates are raised on millionaires, they actually stay put.  This means it is indeed possible to improve state government finances by using a very mildly progressive income tax, a tax with a higher rate for very high incomes.  The evidence comes from academic studies of a near-perfect test case: New Jersey.

I’ll let Ezra Klein of the Washington Post explain:

When anyone brings up new taxes on the rich, the big objections is that such taxes end up being counterproductive because the rich simply flee to places that don’t tax them. This is, in theory, particularly true at the state level. It just doesn’t appear to be true in practice.

A few years ago, New Jersey instituted a tax that raised rates on those making more than $500,000. Predictably enough, some clever academics swooped in to test the prediction that all the rich folks would leave. So how’d it fare? Poorly:

The study found that the overall population of millionaires increased during the tax period. Some millionaires moved out, of course. But they were more than offset by the creation of new millionaires.

The study dug deeper to figure out whether the millionaires who were moving out did so because of the tax. As a control group, they used New Jersey residents who earned $200,000 to $500,000 — in other words, high-earners who weren’t subject to the tax. They found that the rate of out-migration among millionaires was in line with and rate of out-migration of submillionaires.  The tax rate, they concluded, had no measurable impact.

The study went on to conclude that “the policy effect is close to zero,” though if it exists for anyone, it’s for the over-65 crowd who live off their investments.

One thought on “Millionaires Don’t Move to Avoid Taxes – Empty Threats

  1. Michael Hudson: History of US shows economy grows when top tier tax rates and workers wages are high

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