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" 'Millionaires are not very mobile, and when they do move across state lines, taxes play a small role in the decision. Tax-induced migration among millionaires is not zero, but it is fairly close to zero.' Young* notes that millionaires are, by and large, older people with a lifetime of close business, family, and friendship ties in their communities. In fact, much of the net migration to lower tax states is people moving to Florida, a state with many attractions beyond its tax system."
* Cristobal Young, author of the book (pub = Stanford U. Press) highlighted in the article title.
More Californians are moving from the Golden State, particularly lower-income residents, although even middle-class residents are saying goodbye.
Note the article isn’t referring to millionaires or wealthy fleeing, the subject of the original post. Moreover, combining housing costs with taxes in this discussion is like saying refugees are fleeing Syria because of genocide and bear attacks. Moreover, low income residents are generally a net drain on tax revenues. In other words they get out of the tax system via government benefits more than they pay in taxes.
My suspicion is that most people are misinterpreting what "millionaire" means. As used by Young, it is not a measure of wealth, but of income, as I noted in my post. We're talking only about the top 1/3% or so of earners.
The term “millionaire” often refers to individuals with high net worth: those with $1 million or more in financial assets. The focus here is even more exclusive: This is primarily a study of people who can make that amount in a single year. I focus on income earners rather than net wealth because income is subject to taxation in the United States whereas wealth per se is generally not. Thus, “millionaires” in this study—those making at least $1 million in annual income—are more elite than the 1 percent. They represent roughly the top 0.3 percent of people in the income distribution. As a group, their median income is $1.7 million. Some—about 4 percent of the group—make at least $10 million per year.
This very elite group of high earners is very immobile, so why they move doesn't matter from a tax policy perspective. Nevertheless (from the research paper):
one set of findings that stands out is the persistence of millionaire income over time. “One-time” millionaires show no sensitivity to the top tax rate ...; households that routinely earn $1 million have the highest tax responsiveness.... This suggests that tax avoidance is indeed an element of elite migration: the migration patterns of people with a greater lifetime exposure to top tax rates are more sensitive to these rates. In other words, income tax rates are more salient to people who routinely earn elite incomes.
@MSF In the paragraph after the one you cite is this graph:
However, persistent millionaires also have the lowest overall migration rates. One-time millionaires have an overall migration rate of 3.2 percent, compared to only 1.9 percent among the most persistent millionaires. This supports the hypothesis that elite incomes have a strong place-specific component that ties millionaires to their home states.
Which is why, immediately preceding the paragraph I quoted, I wrote an even stronger statement: that the elites' relative immobility means that from a tax policy perspective, it doesn't matter why they move.
IMHO it is important to be clear what one is talking about. If one is talking about how strongly higher income taxes affect people's motivation in moving, then (a) one should be stratifying based on income, not wealth, and (b) the research shows that (not surprisingly) it is the persistently highest income earners who are most strongly motivated to move.
However, if one is talking about state tax revenue, then what matters is the loss of revenue due to a relatively small number of very high earners moving vs. the increase in revenue due to the higher taxes imposed on those remaining. Different question.
In short, the research seems to show that it is not a myth that higher income taxes nudge higher earners to move. It just doesn't matter, except when the higher income taxes don't result in higher state revenue from those remaining. That's the problem with the near elimination of the SaLT deduction - higher taxes but no higher state/local revenue (just Federal).
IMHO it is important to be clear what one is talking about. If one is talking about how strongly higher income taxes affect people's motivation in moving, then (a) one should be stratifying based on income, not wealth, and (b) the research shows that (not surprisingly) it is the persistently highest income earners who are most strongly motivated to move.
But the research doesn't show that. This again is from the paper you cited:
Figure 1 shows the income–migration curve over the whole distribution of income, as income rises from nearly zero to millions of dollars per year. The highest rates of migration are seen among low-income tax filers: migration is 4.5 percent among people who earn around $10,000. The migration rate drops steadily with income, and migration is lowest (2.0 percent) for people making around $90,000. Above this point, and into millionaire-level incomes, we see a curvilinear effect: migration rates begin to rise again, but only gradually. The migration rate of people making $5 million or more is still only 2.7 percent. The elite are mobile only relative to the upper-middle class. Overall, higher-income earners show greater residential stability and geographic embeddedness than do low-income earners.
Also, the subsequent parts of the study show no great correlation between the wealthy leaving a high tax state to necessarily go to a lower tax one except for the case of Florida and even that isn't particularly clear that it is for tax reasons alone. The study states:
When we exclude any other state but Florida, the results are stable and always achieve statistical significance. The main results depend fundamentally on Florida: when Florida is excluded, there is virtually no tax migration; when any other state is excluded, our core finding of tax-induced migration is supported.Florida is the leading destination for millionaire migration, and this state is critical to the evidence for tax-induced migration. Florida has no state income tax, but it is also attractive in other unique ways—for example, it is the only state with coastal access to the Caribbean Sea. It is difficult to know whether the Florida effect is driven by tax avoidance, unique geography, or some especially appealing combination of the two.
But I think the larger point is that over 97% of top earners stay in high tax states and that is actually higher than low income residents who can be a net drain on state tax coffers consuming more in government benefits than they pay in taxes. Arguing around this is rather meaningless though. The point is the idea that high taxes will drive the rich out of a state in any great numbers is fundamentally false. And the stats bear that out. I also wonder even in the case of the few wealthy residents who do leave for other states what sorts of tax avoidance schemes they may have been employing while living in the high tax states. How much were those wealthy people who leave a benefit to the state coffers if they were already seeking ways to avoid paying their fare share and are so greedy for a few extra million they're willing to leave family and community behind to move to a lower tax state?
"Figure 1 shows the income–migration curve over the whole distribution of income, as income rises from nearly zero to millions of dollars per year. The highest rates of migration are seen among low-income tax filers: migration is 4.5 percent among people who earn around $10,000. The migration rate drops steadily with income, and migration is lowest (2.0 percent) for people making around $90,000."
Yes, but so what? This does not refute my statement that tax considerations are a stronger motivating factor for the elites than others. The hoi polloi could be leaving for a variety of reasons having nothing to do with taxes, while the fewer elites who do leave could be significantly influenced by tax considerations.
In the authors' words:
Millionaires have lower migration rates than the general population [for a variety of reasons]. However, these descriptive facts do not speak directly to the dynamics of tax flight. Despite low migration rates, millionaires may still be keenly focused on ensuring that migration leads them to a lower tax state.
That quote is presented not to substantiate my point but to show the flaw in your counterargument.
As far as Florida is concerned, we don't know whether Florida is unique among all states, or merely among low tax states. Suppose there is a tax migration effect so that some percentage of elites really are attracted to low tax states generally.
Perhaps among only the low tax states is Florida especially attractive (equivalently, the other low tax states might be relatively unattractive). In that case, it's not that people are leaving for Florida and it just happens that Florida is a low tax state, but rather that people who leave for low tax states just happen to prefer Florida.
It is difficult to know whether the Florida effect is driven by tax avoidance, unique geography, or some especially appealing combination of the two. Disentangling these factors for one specific state is beyond the scope of this research
Again, the counterargument that Florida disproves a tax migration effect fails. I'm not saying that you're wrong, simply that the research doesn't support (or disprove) your argument.
Figure 1 shows interstate migration rates; it says nothing about net movement from high to low tax states, or vice versa. For any income level.
But for those with $1M+ incomes ...
Thus, evidence from the persistence of millionaire income gives support to both the tax-migration and embeddedness perspectives. On one hand, persistent millionaires are less likely to ever change their state of residence, but when they do move, they are more attentive to top tax rates and are more likely to choose a lower-tax state as their destination.
Yes, but so what? This does not refute my statement that tax considerations are a stronger motivating factor for the elites than others. The hoi polloi could be leaving for a variety of reasons having nothing to do with taxes, while the fewer elites who do leave could be significantly influenced by tax considerations.
But what you originally said was:
the research shows that (not surprisingly) it is the persistently highest income earners who are most strongly motivated to move.
Saying some wealthy folks are more strongly motivated than other wealthy folks to move is quite different from using the superlative and saying they are the most motivated to move of every income group. The evidence doesn’t bear that out. And while the “hoi polloi” could be motivated to move for other reasons besides taxes the study is quick to point out that the ultra rich could also be moving for other reasons. I noticed that you shifted from the certainty of “are most strongly motivated” to the much less certain subjunctive tense “could be significantly influenced by tax considerations.” That’s because the study isn’t certain why they move. In fact, one could say the difference between the lowest percentage 2% of the upper middle class who move and the 2.7% of the ultra rich that move is not particularly statistically significant at all. Discussing that is distorting the larger point of the study. The vast majority of the top earners—over 97%—stay put in high tax states. That seems far more certain than why the 2.7% of them may leave.
There are a number of problems with this book, not the least being that it apparently defines millionaire as $1,000,000 in income not assets.
You also have to individualize the high tax states as some have thriving economies and a growing tax base (CA) while others (CT IL ) do not because of government policies that support government union benefits to the exclusion of programs that do some social good. CT for example was the last state in the union to recover all the job losses in the 2008 recession and has the lowest income growth, and flat to declining real estate prices
Consequently there are far more people leaving CT than arriving ( net loss of about 600 people a day, and the income of those who leave is about 30% higher than the arrivals. Most of the "leavees" are retirees who cannot afford a 4 to 6 % income tax that they do not have to pay in Florida or Texas.
the tax law changes and the massive government employee benefits still owed ($50,000,000,000) will make the situation in this state disastrous. Yet the democratic governor and legislator just handed out tuition benefits to "Dreamers" and propose spending the tax surplus ( mainly capital gains) this year on more government programs.
We agree that few elites (those earning $1M+) move annually, whether from high tax states to low tax states or vice versa. We agree that the impact of any out migration from higher tax states is sufficiently small - so that states could safely increase tax revenue by raising rates on incomes over $1M. Young even shows that total tax revenues would continue to increase as "millionaire taxes" were raised to as high as 68%.
However, Young shows that but for the tendenancy of elites to move away as income taxes get higher, states could raise millionaire taxes all the way to 73% before tax revenue started to decline. While we also agree that correlation does not equal causation (at least I think we agree), for whatever reason(s) elites do migrate away from high tax states, they do so in sufficient numbers that the optimal rate for a millionaire tax is reduced by 5% (from 73% to 68%).
Elites move away in higher numbers as tax rates increase; this is not a myth.
Young also shows that the existence of this tendency for out migration of "persistent millionaires" is almost dead certain (p < 0.01, so there's less than a 1% chance that this perceived effect isn't real). In contrast, he shows that for "one time" millionaires, the rate of out migration is only 1/6 as much, and even that is not statistically significant (p > 0.05; Table 3 and text).
Finally, a couple of observations about migration of the general populace. Figure 1 shows gross migration rates, i.e. what percentage of people with various incomes "change their state in a given year", whether out of or into high tax states. Absent information about direction of migration, one cannot infer from this figure that out migration of millionaires is relatively low compared with out migration of others.
Young is focused almost exclusively on migration of the elite. But he does build Model 3 to address the question "Are the rich different?" From this model he concludes that "the most striking difference is that for the general population, there is no significant tax-migration effect. Millionaires are more sensitive to income tax rates than is the general population."
Call that motivation, call that something else, this "sensitivity" is greater for the elite. Does it matter? That's a different question.
Comments
" 'Millionaires are not very mobile, and when they do move across state lines, taxes play a small role in the decision. Tax-induced migration among millionaires is not zero, but it is fairly close to zero.' Young* notes that millionaires are, by and large, older people with a lifetime of close business, family, and friendship ties in their communities. In fact, much of the net migration to lower tax states is people moving to Florida, a state with many attractions beyond its tax system."
* Cristobal Young, author of the book (pub = Stanford U. Press) highlighted in the article title.
Regards,
Ted
https://www.cnbc.com/2018/03/19/californians-fed-up-with-housing-costs-and-taxes-are-fleeing-state.html
https://www.mutualfundobserver.com/discuss/discussion/comment/100628/#Comment_100628
My suspicion is that most people are misinterpreting what "millionaire" means. As used by Young, it is not a measure of wealth, but of income, as I noted in my post. We're talking only about the top 1/3% or so of earners.
The linked taxvox page refers to Young's book: This very elite group of high earners is very immobile, so why they move doesn't matter from a tax policy perspective. Nevertheless (from the research paper):
IMHO it is important to be clear what one is talking about. If one is talking about how strongly higher income taxes affect people's motivation in moving, then (a) one should be stratifying based on income, not wealth, and (b) the research shows that (not surprisingly) it is the persistently highest income earners who are most strongly motivated to move.
However, if one is talking about state tax revenue, then what matters is the loss of revenue due to a relatively small number of very high earners moving vs. the increase in revenue due to the higher taxes imposed on those remaining. Different question.
In short, the research seems to show that it is not a myth that higher income taxes nudge higher earners to move. It just doesn't matter, except when the higher income taxes don't result in higher state revenue from those remaining. That's the problem with the near elimination of the SaLT deduction - higher taxes but no higher state/local revenue (just Federal).
https://www.amny.com/news/new-york-los-angeles-moving-1.18259879
Yes, but so what? This does not refute my statement that tax considerations are a stronger motivating factor for the elites than others. The hoi polloi could be leaving for a variety of reasons having nothing to do with taxes, while the fewer elites who do leave could be significantly influenced by tax considerations.
In the authors' words: That quote is presented not to substantiate my point but to show the flaw in your counterargument.
As far as Florida is concerned, we don't know whether Florida is unique among all states, or merely among low tax states. Suppose there is a tax migration effect so that some percentage of elites really are attracted to low tax states generally.
Perhaps among only the low tax states is Florida especially attractive (equivalently, the other low tax states might be relatively unattractive). In that case, it's not that people are leaving for Florida and it just happens that Florida is a low tax state, but rather that people who leave for low tax states just happen to prefer Florida. Again, the counterargument that Florida disproves a tax migration effect fails. I'm not saying that you're wrong, simply that the research doesn't support (or disprove) your argument.
Figure 1 shows interstate migration rates; it says nothing about net movement from high to low tax states, or vice versa. For any income level.
But for those with $1M+ incomes ...
You also have to individualize the high tax states as some have thriving economies and a growing tax base (CA) while others (CT IL ) do not because of government policies that support government union benefits to the exclusion of programs that do some social good. CT for example was the last state in the union to recover all the job losses in the 2008 recession and has the lowest income growth, and flat to declining real estate prices
Consequently there are far more people leaving CT than arriving ( net loss of about 600 people a day, and the income of those who leave is about 30% higher than the arrivals. Most of the "leavees" are retirees who cannot afford a 4 to 6 % income tax that they do not have to pay in Florida or Texas.
the tax law changes and the massive government employee benefits still owed ($50,000,000,000) will make the situation in this state disastrous. Yet the democratic governor and legislator just handed out tuition benefits to "Dreamers" and propose spending the tax surplus ( mainly capital gains) this year on more government programs.
However, Young shows that but for the tendenancy of elites to move away as income taxes get higher, states could raise millionaire taxes all the way to 73% before tax revenue started to decline. While we also agree that correlation does not equal causation (at least I think we agree), for whatever reason(s) elites do migrate away from high tax states, they do so in sufficient numbers that the optimal rate for a millionaire tax is reduced by 5% (from 73% to 68%).
Elites move away in higher numbers as tax rates increase; this is not a myth.
Young also shows that the existence of this tendency for out migration of "persistent millionaires" is almost dead certain (p < 0.01, so there's less than a 1% chance that this perceived effect isn't real). In contrast, he shows that for "one time" millionaires, the rate of out migration is only 1/6 as much, and even that is not statistically significant (p > 0.05; Table 3 and text).
Finally, a couple of observations about migration of the general populace. Figure 1 shows gross migration rates, i.e. what percentage of people with various incomes "change their state in a given year", whether out of or into high tax states. Absent information about direction of migration, one cannot infer from this figure that out migration of millionaires is relatively low compared with out migration of others.
Young is focused almost exclusively on migration of the elite. But he does build Model 3 to address the question "Are the rich different?" From this model he concludes that "the most striking difference is that for the general population, there is no significant tax-migration effect. Millionaires are more sensitive to income tax rates than is the general population."
Call that motivation, call that something else, this "sensitivity" is greater for the elite. Does it matter? That's a different question.