New Study Dispels Myth about
Propensity of U.S. Millionaires to Move from High to Low Tax States
American
Sociological Association
The view that the rich are highly mobile has gained much political traction in recent years and has become a central argument in debates about whether there should be “millionaire taxes” on top-income earners. But a new study dispels the common myth about the propensity of millionaires in the United States to move from high to low tax states.
“The
most striking finding in our study is how little elites seem willing to move to
exploit tax advantages across state lines,” said Cristobal Young, an assistant
professor of sociology at Stanford University and the lead author of the study.
“Millionaire tax flight is occurring, but only at the margins of significance.”
In
any given year, Young and his fellow researchers found that roughly 500,000
individuals file tax returns reporting incomes of $1 million or more (constant
2005 dollars).
From
this population, only about 12,000 millionaires change their state each year.
The
annual millionaire migration rate is 2.4
percent, which is lower
than the migration rate of the general population (2.9 percent).
The
highest rates of migration are seen among low-income tax filers: migration is
4.5 percent among people who earn around $10,000 a year.
“We
tend to think of migration as a form of freedom and one of the privileges
enjoyed by the rich. In practice, migration comes with high social and economic
costs — uprooting one’s family, breaking away from one’s social networks, and
restarting in a new place.”
The
study finds that family responsibilities are a key factor that limit migration
among top-income earners. “Very affluent people are much more likely to be
married and to have school-age children, which makes moving more difficult,”
Young said.
Young
also noted that most millionaires today are “the working rich” and do not live
off inherited wealth, but instead rely on earnings from employment.
“They
work as lawyers, doctors, managers, and financial executives,” he said. “They
are at the peak of their careers and typically earn million-dollar incomes only
for several years. People avoid potentially disruptive moves when they are
performing at the very top of their game.”
Titled,
“Millionaire Migration and Taxation of the Elite: Evidence from Administrative
Data,” the study, which appears in the June issue of the American
Sociological Review, relies on federal income tax returns from all U.S. tax
filers who earned $1 million or more in any year between 1999 and 2011.
This
resulted in a dataset of 45 million tax records from 3.7 million unique tax
filers over 13 years.
For
comparison, Young and his co-authors, Charles Varner, a sociologist and an
associate director of the Center on Poverty and Inequality at Stanford
University, and Ithai Z. Lurie and Richard Prisinzano, both financial economists
at the Office of Tax Analysis at the U.S. Department of Treasury, also drew a 1
percent sample of the total population of tax filers, giving them an additional
24 million tax records from 2.6 million unique filers across the income
distribution.
The
researchers tracked the income and residency of all of the filers over the
entire study period.
“Previous
studies on elite tax flight have struggled with data limitations either by
using narrow segments of the millionaire population, such as professional
athletes, or by analyzing limited geographic regions, such as one or two
states,” Young said. “This
study includes every tax record filed by every U.S. millionaire over more than
a decade.”
According
to the study, in the average state, which has an annual population of more than
9,000 individual millionaires, a one percent tax increase on this population
would result in an expected loss of 23 of these economic elites.
“Yes,
a handful of top earners would leave,” Young said. “But, more notably,
virtually all of the millionaire population would stay.”
While
millionaire migration is extremely limited, there is a grain of truth in the
worries about millionaire tax flight, the study finds. “When millionaires do
migrate, they are more likely to move to a state with a lower tax rate, and
that state is almost always Florida,” Young said.
There
are nine states without a state income tax, but only Florida disproportionally
attracts millionaires from higher tax states, Young said. The other states,
such as Texas, Nevada, and New Hampshire, do not.
“My
guess is that if Florida established a ‘millionaire tax,’ elites would still
find Florida appealing because of its climate and geography — and patterns of
elite migration wouldn’t really change,” Young said.
In
fact, the millionaire migration that does occur has so little to do with tax
differences that Young and his co-researchers estimate that if all states had
the same tax rate — so there were no tax incentives to move — there would only
be approximately 2.2 percent or about 250 fewer millionaire migrations between
states each year.
The
study also looked at the millionaire population along the borders between
states with different tax rates. “In these narrow geographic regions, you would
expect millionaires to cluster on the low tax side of the border, but we see
very weak evidence of this,” Young said.
As
for policy implications, Young said “millionaire taxes” result in minimal tax
flight among millionaires and help states raise revenue to improve education,
infrastructure, and public services, while reducing inequality.
“Our
research indicates that ‘millionaire taxes’ raise a lot of revenue and have
very little downside,” Young said.