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Don’t Be Fooled by the Millionaire Migration Myth

At a time when personal income tax rates on the wealthiest Americans are at their lowest levels in decades and states around the country find themselves starved for revenue and facing formidable shortfalls, a chorus of conservative voices has been attempting to justify even further tax reductions. They are claiming that high state tax rates are causing wealthy residents to abandon their homes and move to states with lower taxes. But despite acceptance by many on both sides of the aisle, studies have conclusively shown this “millionaire migration” theory to be a myth.

The millionaire migration myth – the central claim of which is that asking the wealthy to pay their fair share would actually result in decreased state tax revenues due to interstate migration - was advanced in states including New York, New Jersey, Connecticut, Rhode Island, Maryland, and Oregon. However, a closer inspection has shown that there is no correlation between state tax rates and migration. Furthermore, a litany of recent polls shows that voters overwhelmingly support higher taxes on the rich as a means of addressing large budget deficits – especially when compared with the damaging cuts to state budgets that are actually responsible for the slowing pace of our national economic recovery.

The millionaire migration myth attracted a lot of attention in 2009, a year after the Maryland legislature raised the state tax rate on residents earning over $1 million to 6.25 percent. That year, the number of Maryland residents filing returns over $1 million dropped by 30 percent, leading the right wing to instantly leap to the irrational conclusion that one-third of the state’s top earners simply packed up and left the state. After a similar 2009 tax increase in Oregon failed to yield the expected increased revenue, the myth spread like wildfire. Suddenly, it became indisputable logic to many that progressive income taxes in New Jersey and Connecticut, a temporary millionaire’s tax in New York, and the estate tax in Rhode Island were all causing the wealthiest residents of those states to flee for the sunnier (read: low tax) pastures of Florida.

Despite the many attempts to advance the millionaire migration myth, a host of rational voices are thankfully helping to debunk it. Three main reasons emerge from their analyses that show why the clamoring from the right should not be taken seriously.

First of all, in bad economic times, salaries drop for people at all levels of the income scale, meaning that fewer people are filing tax returns in the millions. Next, even in instances where it can be proven that millionaires are moving out of a state, they often move to another state that has an equal or even higher rate of taxation, indicating that such decisions are likely determined by factors that individuals find to be more important than tax rates - like good schools, safe neighborhoods, and close proximity to their jobs. And lastly, critical analyses of the reports of millionaire migration have shown that the statistics used to “demonstrate” this phenomenon are inaccurate.

For instance, a 2009 report from the Institution on Taxation and Economic Policy showed that, in Maryland, the reduction in the number of taxpayers filing returns of over $1 million corresponded with an increase in the number of people filing in the tax bracket directly beneath it. The millionaires were not moving; they were making less money. Furthermore, the tax increases in Maryland affected more than just millionaires – the data revealed that the number of Maryland residents affected by the new taxes actually increased following passage into law. A similar scenario played out in Oregon in 2010, as the decrease in the number of million-dollar earners explained why the state brought in less-than-expected tax revenue. However, the number of taxpayers filing returns of over $100,000 was actually 60,000 more than initially expected. Again, high income earners were clearly not moving away from the state.

Claims that Rhode Island’s estate tax was causing the state’s wealthy residents to leave were also thoroughly off the mark. The Rhode Island Poverty Institute released a report in 2010 showing that estimates of tax revenue lost to migration were greatly exaggerated and used highly flawed statistics. Most convincing, the study showed that when Rhode Island residents did move, the most popular destination was Massachusetts, which also has an estate tax. In New York, the study which claimed to support the millionaire migration myth was practically a work of fiction. Among a litany of statistical fallacies, the study claimed that there were over 380,000 people with million-dollar tax returns in the state in 2007 when the real data shows there were only 375,000 people filing returns of $200,000 and above. It also reported data from 2009 tax returns when that data did not even exist yet, making it quite difficult to trust any of the conclusions drawn from this study.

At least two accurate, methodological studies have been conducted on the alleged migration phenomenon. Earlier this year, researchers at Princeton University released a highly detailed report analyzing the effects of the 8.97 percent tax rate on New Jersey’s top earners. The conclusion of the study was that “New Jersey’s new tax raises nearly $1 billion per year, and tangibly reduces income inequality, with little cost in terms of tax flight.” A similarly in-depth study of New England tax rates conducted by the Political Economy Research Institute at the University of Massachusetts, Amherst concluded that “taxes do not play any notable role in causing people to leave a state.” In fact, “higher state income taxes are shown to decrease the numbers of people leaving a state.”

The facts on this issue are clear: millionaire migration is not a reality for states with high taxes. What is real, however, is the degree of fiscal crisis in which so many states presently find themselves, caused largely by a systemic lack of revenue. Responsible policymakers know that asking the highest income earners to pay their fair share needs to be a part of addressing large budget deficits, and the American people agree. Poll after poll has shown that a large majority of Americans believe that a balanced approach to addressing budget deficits, including higher taxes on the wealthy, is the right way to go. And not only is this is approach good policy, it's good politics as well.

Resources

The Wall Street Journal - “Millionaires Go Missing” 
The Wall Street Journal - “Ducking Higher Taxes” 
Bloomberg “New Jersey Population Growth Slows as Taxes Push Some to Flee” 
The Connecticut Policy Institute - “Don’t Kill the Golden Goose!: Raising the Income Tax May Be Good Politics, but It Is Bad Policy” 
Partnership For New York City - “Can New York Rely on a ‘Millionaire’s Tax’ to Solve the Budget Crisis?”
Ocean State Policy Research Institute - “‘Leaving Rhode Island’ Policy Lessons from Rhode Island’s Exodus of People and Money”
Reuters - “Analysis: Americans try to outrun state, local tax hikes”
Institution on Taxation and Economic Policy - “Where Have All of Maryland’s Millionaires Gone? Nowhere – They’re Probably Just Not Millionaires Anymore”
Institution on Taxation and Economic Policy - “Dear Wall Street Journal: No Need to File a Missing Persons Report – Oregon’s High-Income Taxpayers Have Not ‘Vanished’”
The Poverty Institute - “Report claiming Rhode Islanders moving out to avoid estate tax is unmoving”
Citizens for Tax Justice - "Authors of New York Study Claiming Millionaires Fleeing Reach New Low and Just Make Up Numbers" 
National Tax Journal - “Millionaire Migration and State Taxation of Top Incomes: Evidence from a Natural Experiment”
Political Economy Research Institute - “The Impact of Taxes on Migration in New England”
The Wall Street Journal, The Wealth Report“The Downwardly Mobile Millionaires”
Capital Gains and Games - “Americans Support Higher Taxes. Really.”