Does raising taxes make rich people move away?

Flight of the Earls Mythology Debunked

A sculpture in Ireland depicts the original "Flight of the
Earls" during which some affluent Irish in the early 1600's
left for mainland Europe to recruit sympathizers
against the British crown.

By Bob Plain on March 7, 2012

You can bet that as the General Assembly debates raising taxes on Rhode Island’s richest residents, we’re sure to hear much about the “Flight of the Earls.”

In fact, almost any time you talk taxes with a local conservative you are bound to hear a story about someone moving out of state because of the high costs of living here. This false narrative, known as the Flight of the Earls, is meant to scare the state out of taxing the rich with the threat that they will simply move to Fall River or Florida if we do.

My question: Who are these foolish rich people who would so disrupt their lives and spend thousands of dollars to relocate in order to save a few hundred bucks in taxes, and why do we care if they leave? After all people who would employ such flawed economic logic can’t really be expected to create many jobs, let alone figure out how to pay their tax bill…

Of course, no one moves to save money on taxes – that would be like buying a new car to avoid oil changes – and a new report from the Economic Progress Institute proves as much.

The Flight of the Earls theory, the reports states, “ignores the fact that moving – selling a home, hiring movers, buying a new home – is very costly, even for wealthy households. And leaving a place filled with family, friends, business associates and other connections, in addition to changing schools, imposes substantial burdens.”

Authored by Jeffrey Thompson, a research professor at the Political Economy Research Institute, the report goes on to suggest that the very reason the right says the rich will leave is actually a reason they are likely to stay.

“The wealthy drive better cars,” writes Thompson, “but they drive them on public streets. Even if affluent families send children to private schools, the businesses they own hire workers who graduate from local schools. And upper-income families value the services of fire and police as much as any other family.”

His research found that so few people actually move, less than 2 percent of households between 2008 and 2009, that migration has almost no effect on tax revenue collected. “Income has only a very weak impact on the chance of moving to a different state, with the likelihood actually dropping for the highest income households,” he wrote.

Thompson cites a New Jersey study that found the wealthy were no more prone to move out of state after a tax increase than they were before.

Of course, what really happens is people decide to move for lifestyle or career considerations and if they were the type to complain about Rhode Island in the first place, they will suggest that their complaints are actually the reason for their exodus.

But even when the rich do move away, they typically sell their homes to people in a similar tax bracket. It’s the cheap homes, not the expensive ones, that are sitting idle on the market. And for the few rich folks who are fleeing Rhode Island because of taxes, we can take heart that they will likely be replaced by people who wouldn’t make such an illogical life choices.