Nothing warms my heart quite as much as being right. That’s why I was delighted to encounter a pair of studies confirming what I argued last year when Washington voters were considering a high-earners income tax: income taxes on the wealthy do not push the wealthy out of state. They just don’t.
Last month, Jeffrey Thompson, an economist at U. Mass, Amherst’s Political Economy Research Institute, produced an analysis called “The Impact of Taxes on Migration in New England.” In a nutshell, what Thompson found was:
Overall the results suggest that taxes do not cause out-migration, but do influence on the choice of destination for some migrating households. States raising taxes will see somewhat fewer migrants choose their state as a destination, but offset and reverse this impact when they use increased tax revenues in ways that attract people and create jobs. Because the migration impacts of unemployment are so much greater than for taxes, when states use additional revenue to create jobs and lower unemployment, the net effect is to decrease outmigration and attract more people to the state.
Now, I learn via Goldy that a similar analysis in New Jersey comes to the same conclusion.
In “Millionaire Migration and State Taxation of Top Incomes: A Natural Experiment,” Cristobal Young (Stanford) and Charles Varner (Princeton) analyze the effects of a new “millionaires tax” in New Jersey, which now has one of the highest top marginal income tax rates in the country. Here’s how the Wall Street Journal describes the findings:
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 tax rate, they concluded, had no measurable impact.
“This suggests that the policy effect is close to zero,” the study says.
NPR has an excellent, readable summary of both studies.
Arie
I see a note of caution in that these taxes “do influence on the choice of destination for some migrating households.” If our economy weren’t reliant on an influx of tech workers then this wouldn’t strike me as an issue. Seattle is not New Jersey.
Andrew
Do the wealthy flee jurisdictions that fail to adequately fund public services (and reap resulting social ills)?
Rep. Ross Hunter
As a random anecdote, when I was hiring at Microsoft I heard more questions about school quality than I did about income tax rates from potential hires. People come for jobs and quality of life, not so much tax rates. The tax rate affected the pay of course, but not as much as you might think. At the time (a very long time ago) there was a 15% plus on salaries for people living in the Bay Area, but nothing for other states.For tech workers, Washington has one of the lowest tax environments in the known universe, or at least of the states that tech workers go to.
Erik
Not to mention, the rich, and even the $200K+/year crowd, pretty much figure out how to pay lower taxes, percentage wise, than the rest of us anyway, so they realize it doesn’t really matter where they live. That’s because there are so many loopholes and incentives written in the tax code that can only be taken advantage of if you have their level of income.
fetchingbike
There was a very interesting podcast on this subject on NPR’s Planet Money: http://www.npr.org/blogs/money/2011/04/29/135813061/studies-rich-dont-flee-high-tax-states