If you tax the rich, they won't leave: US data contradicts millionaires' threats

Does raising taxes on the rich really trigger their migration to more obliging states or countries? This study of every million-dollar earner in the US shows otherwise

In the classic Ayn Rand novel Atlas Shrugged, the rich go “on strike” – withdrawing their services and disappearing from society in protest against taxes and regulation. Weary of carrying an ungrateful world on their shoulders, business leaders and other top income earners finally shrug, and leave the world without them.

The book’s metaphor inspires political rhetoric to this day: if you tax the rich, they will leave. Variations on the threat are issued by well-off individuals all over the world – not least in the United States, where each state sets its own tax policies, and periodic warnings are issued that taxes on the rich will lead to millionaire migration to more obliging US states.

When Oregon voters passed a millionaire tax at the start of this decade, for example, the state’s richest resident, Nike CEO Phil Knight, warned the tax would set off a “death spiral … in which thousands of our most successful residents will leave”. As California considered similar taxes, policymakers cautioned “nothing is more mobile than a millionaire and his money”. In New Jersey, governor Chris Christie simply stated: “Ladies and Gentlemen, if you tax them, they will leave.”

But does this rhetoric stand up to statistical scrutiny? To better understand elite migration across state lines, I analysed tax return data from every million-dollar income-earner in the United States. The dataset includes 3.7 million top-earning individuals, who collectively filed more than 45 million tax returns over more than a dozen years – showing where millionaires live and where they move to.

And it turns out that place still matters for the rich – much more so than we might think.

Only about 2.4% of US-based millionaires change their state of residence in a given year. Interstate migration is actually more common among the US middle class, and almost twice as common among its poorest residents, who have an annual interstate migration rate of 4.5%.

While travel may be a classic “luxury good”, migration is not. Moving one’s home, life and family to a different place is mostly about people who have a poor economic fit with where they live, earn below-market incomes, and are struggling to find a livelihood. Higher income earners show low migration levels because they are not searching for economic success – they’ve already found it.

When millionaires do move, they admittedly tend to favour lower-tax states over higher-tax ones – but only marginally so. Around 15% of interstate millionaire migrations bring a net tax advantage. The other 85% have no net tax impact for the movers.

Furthermore, almost all of the tax-migration moves are to just one low-tax state: Florida – where low-income taxes comingle with sun, sand and palm trees. Other low-tax states such as Texas, Tennessee and Nevada do not pick up any net tax-migration. So while some millionaires have moved to lower tax states over the years 1999-2011, the flows have been too small to change the geography of the economic elite in America.
The world view

The Forbes list of the world’s billionaires offers an international look at elite migration, and takes us higher up the food chain to the greatest corners of wealth.

Analysis of this list shows most of the world’s billionaires – about 84% – still live in their country of birth. And among those who do live abroad, most moved to their current country of residence long before they became wealthy – either as children with their parents, or as students going abroad to study (and then staying).

Only about 5% of world billionaires moved abroad after they became successful. These individuals readily fit the stereotype of a “transnational capitalist class” – unplugged from their nation state, travelling the world for some combination of tax avoidance and cosmopolitan lifestyle.

Many of them can be found in London claiming “non-dom” status to avoid the tax laws of both their homeland and those that apply to British citizens. Others are located in tropical tax havens – such as Sir Richard Branson, who moved to the British Virgin Islands after becoming a billionaire.

These jet-setting billionaires generate a lot of headlines and cynicism about tax flight. But they are anecdotal exceptions. The world’s billionaires largely live where they were born or where they began their careers. The British elite live in Britain, the Chinese elite live in China, and the American elite live in America. After making it on to the Forbes billionaire list, elites are actually more likely to die than to move to a different country.

Why do the rich have such low migration rates? And why is common intuition about elite migration so wrong? It turns out that education is a big part of the remaining puzzle.

People with high levels of education have very high mobility – but only for a short period after finishing their education. If you know people who have been geographically mobile, the chances are they have a higher-level education. However, once they have made a solid start to their career, the chances are also that they will not move again.

Migration is a young person’s game, and moving overwhelmingly occurs when people are starting their careers. By the time people hit their early forties, PhDs, college grads and high school drop-outs all show the same low rate of migration.

Typically, millionaires are society’s highly educated at an advanced career stage. They are typically the late-career working rich: established professionals in management, finance, consulting, medicine, law and similar fields. And they have low migration because they are both socially and economically embedded in place.

In the US tax data, while most of the millionaires’ incomes come from wages and salaries, a quarter of them also own a business. Almost all of them are married, and most have children at home. For all these reasons, places are sticky – it is hard to move after making a career and family in a place.

If millionaires were mostly college-going twentysomethings not yet tied to place by career or family responsibilities, place-based income tax systems would face serious challenges. We would be trying to tax the rich exactly when they are most mobile. But this is not the case. Typically, people make decisions about where to live almost two decades before they hit their peak earnings.

This shows a kind of unexpected genius behind taxes on the very highest incomes. A tax on million-dollar income serves as an intergenerational transfer, since those who pay it are the late-career working rich: socially and economically embedded in the place.

In contrast, most of the people who are mobile – early career professionals – do not really care about the “millionaire tax”, because if they ever pay it, it will be decades in the future, and only if they are wildly successful.

Millionaire tax revenues could be used to invest in things that matter to young people starting out: education, infrastructure, public services, urban amenities, quality of life. And this would help to attract and retain a pipeline of future top-earners, creating a virtuous tax circle.

This is why places with highly progressive income taxes – such as New York and California – still thrive as centres for talent and elite economic success. Their policies focus on the pipeline of future top earners. They invest in what attracts mobile young professionals – quality of life – and only send them the bill if and when they achieve their highest aspirations.

https://www.theguardian.com/inequality/2017/nov/20/if-you-tax-the-rich-they-wont-leave-us-data-contradicts-millionaires-threats





So, next time someone tells you 'if you raise taxes on the rich they will move away' you can tell them they are talking cobblers.

Is that why it happened in France?

Again it depends what the increase or level is.

Clearly 75% is clearly too high and wrong, which such a level was dropped

So is this article being honest on tax rates?

If you taxed Americans at 60-70% they would leave enmass.

The highest rate in California is no different to the UK, where in the US tax rates are on average lower.

Nobody minds paying higher taxes if its resonable and the levels in Caliornia are reasonable

So its a very disingenuous article

        After factoring in their high tax-free thresholds, all their existing 'lurks and perks' and their existing use of offshore tax havens,  US millionaires (and especially billionaires..) already have one of the lowest overall tax rate regimes in the world...

They won't be in any hurry to flee the USA if they don't have somewhere suitable and satisfactory to move to..

If the US guvm'nt were to simply make many of their millionaires pay their fair and proper rates of taxation at their current levels, they could probably manage without any significant tax hikes needed anyway.

AND they could afford to implement both a universal basic healthcare system, and a reasonable welfare system, at the same time --  simply by cutting out both those tax loopholes and a lot of their wasteful crap spending..          

Because thats exactly how it worked in France

They are the last people could could live without their lattes in a sidewalk cafe in lower Manhattan.  

Pleezzze...

The seriously rich will never allow governments, of whatever country, to impose punitive taxes on them.

Times have changed: Now, with a couple of keystokes on a computer or iphone, millions of pounds or dollars can be moved from economies such as the UK or US to tax havens. Legally.

Don't believe it? More fool you.

US corporations love to shuttle money to countries with lower corporate tax rates.

And comparing Kansas to California is hardly fair. Texas is kicking Cali's ass without breaking a sweat and we have fairly low taxes, and far lower than California. And we are running out of room to put all these damn bastards that move here from all over the damn planet.

Maddog wrote:US corporations love to shuttle money to countries with lower corporate tax rates.

And comparing Kansas to California is hardly fair. Texas is kicking Cali's ass without breaking a sweat and we have fairly low taxes, and far lower than California. And we are running out of room to put all these damn bastards that move here from all over the damn planet.    

And who can blame them? Such opportunities or loopholes exist only because national governments permit them to exist, and in many cases have actually facilitated them via past legislation. (I can't comment on US inter-state arrangements because I known nothing about them).

Such avoidance of taxation is perfectly legal, if morally questionable. But if companies - or wealthy individuals for that matter - are able to exploit the rules without straying into the illegal field of tax evasion, then they will do so.

What's the alternative? Wads of fifty quid notes in a brown envelope stuffed through the local HMRC office letterbox with a little note saying "I've had a good year and earned megabucks, and thought the country could do with a bit extra from me"?

Fred Moletrousers wrote:

Maddog wrote:US corporations love to shuttle money to countries with lower corporate tax rates.

And comparing Kansas to California is hardly fair. Texas is kicking Cali's ass without breaking a sweat and we have fairly low taxes, and far lower than California. And we are running out of room to put all these damn bastards that move here from all over the damn planet.    

And who can blame them? Such opportunities or loopholes exist only because national governments permit them to exist, and in many cases have actually facilitated them via past legislation. (I can't comment on US inter-state arrangements because I known nothing about them).

Such avoidance of taxation is perfectly legal, if morally questionable. But if companies - or wealthy individuals for that matter - are able to exploit the rules without straying into the illegal field of tax evasion, then they will do so.

What's the alternative? Wads of fifty quid notes in a brown envelope stuffed through the local HMRC office letterbox with a little note saying "I've had a good year and earned megabucks, and thought the country could do with a bit extra from me"?

The alternative is to make your taxes comparable to the places that they are transferring money to. Make your little slice of heaven more competitive.

Maddog wrote:

Fred Moletrousers wrote:

And who can blame them? Such opportunities or loopholes exist only because national governments permit them to exist, and in many cases have actually facilitated them via past legislation. (I can't comment on US inter-state arrangements because I known nothing about them).

Such avoidance of taxation is perfectly legal, if morally questionable. But if companies - or wealthy individuals for that matter - are able to exploit the rules without straying into the illegal field of tax evasion, then they will do so.

What's the alternative? Wads of fifty quid notes in a brown envelope stuffed through the local HMRC office letterbox with a little note saying "I've had a good year and earned megabucks, and thought the country could do with a bit extra from me"?

The alternative is to make your taxes comparable to the places that they are transferring money to. Make your little slice of heaven more competitive.  

The problems is...those damn moving goalposts.

Original Quill wrote:

Maddog wrote:

The alternative is to make your taxes comparable to the places that they are transferring money to. Make your little slice of heaven more competitive.  

The problems is...those damn moving goalposts.  

That's life. Things change, and one needs to adapt to those changes.

Maddog wrote:

Original Quill wrote:

The problems is...those damn moving goalposts.  

That's life. Things change, and one needs to adapt to those changes.

I wouldn't write it off that easily.  This tax bill is payback to the Kochs and the Mercers for footing the bill for Republicans over the last decade.  Only they are up against the Tea Party, who say no measure should go increase the deficit.  This tax bill will increase the deficit by $3-trillion.  Republicans can't muster the votes with that looming.

Two options present themselves: cut the Defense Budget or fuck the middle class and the poor.

That's why you are seeing the elimination of the mortgage interest write-off, the state and local taxes write-off, and taxation for all manner of items.  Payback for the wealthy support for the Republicans...and what did the Republicans get?  Fuck-all.  But that's all right...they're doing it all on the backs of the middle class and the poor.  Pretty bad.

Original Quill wrote:

Maddog wrote:

That's life. Things change, and one needs to adapt to those changes.

I wouldn't write it off that easily.  This tax bill is payback to the Kochs and the Mercers for footing the bill for Republicans over the last decade.  Only they are up against the Tea Party, who say no measure should go increase the deficit.  This tax bill will increase the deficit by $3-trillion.  Republicans can't muster the votes with that looming.

Two options present themselves: cut the Defense Budget or fuck the middle class and the poor.

That's why you are seeing the elimination of the mortgage interest write-off, the state and local taxes write-off, and taxation for all manner of items.  Payback for the wealthy support for the Republicans...and what did even the Republicans get?  Fuck-all.  But that's all right...they're doing it all on the backs of the middle class and the poor.  Pretty bad.

There is plenty of room in this and every budget to cut. The Dems are too stupid to figure out how to do it, and the Reps are too spineless.

Maddog wrote:

Original Quill wrote:

I wouldn't write it off that easily.  This tax bill is payback to the Kochs and the Mercers for footing the bill for Republicans over the last decade.  Only they are up against the Tea Party, who say no measure should go increase the deficit.  This tax bill will increase the deficit by $3-trillion.  Republicans can't muster the votes with that looming.

Two options present themselves: cut the Defense Budget or fuck the middle class and the poor.

That's why you are seeing the elimination of the mortgage interest write-off, the state and local taxes write-off, and taxation for all manner of items.  Payback for the wealthy support for the Republicans...and what did even the Republicans get?  Fuck-all.  But that's all right...they're doing it all on the backs of the middle class and the poor.  Pretty bad.

There is plenty of room in this and every budget to cut.

I'm not following you.  The game is much simpler than the metaphysical whimsy you offer.  Destroy their pac-man before he destroys you.  I don't have any room for putting my money in the pockets of the already rich.  So, fuck them.

The way to fight them is to pull the plug on them.  Write down on the internet what a scam this is.  It's a big payout for the rich; payback for the money that has gone to wasted Republican tactics.  The Republicans are already responsible for one massive deficit, the Iraq war, while pulling off the first tax cut.  Remember October, 2008?  So, now they are trying to avoid another by pulling out the tax advantages for the middle and lower class, who have a broader base than the wealthy so they could make up for the gold going to the rich.

The Republicans have only a one-vote advantage in the Senate.  That means two defections in the Republican caucus and the bill goes down.   Susan Collins, of Maine, is already a vote against.  I'm pretty sure that the junior Senator from Arizona, Jeff Flake, will vote independently as he has nothing to lose.  He's retiring...and he hates Trump.

Maddog wrote:The Dems are too stupid to figure out how to do it, and the Reps are too spineless.

Maybe so, but why be one of the voters who are both stupid and spineless.  Be one that makes something happen.