Study Contradicts Theory That Millionaires Flee States with Higher Taxes

It has long been assumed that high net worth individuals, along with their businesses, are more likely to move when states raise tax rates on the rich. However, a new study shows that perhaps this is inaccurate: millionaires do not necessarily move to low-tax states, or no-tax states, in order to avoid paying a higher “millionaires tax.”

This revelation is particularly important for New Jersey, which has a high cost of living and a large percentage of residents who are struggling with debt problems. New Jersey currently has the fifth-highest tax rates in the United States.

Earlier this year, the Garden State made headlines when David Tepper, a hedge fund manager for Appaloosa Management, opted to leave New Jersey and move his business to Florida, which has no state income taxes. NJ officials worried that the loss of Tepper’s company would end up costing their state hundreds of millions of dollars.

Do Millionaires Really Move in Order to Avoid Paying Higher Taxes?

Researchers from Stanford University and the U.S. Treasury Department recently released the results of a study of the movements of millionaires. The study, which was published in the American Sociological Review, found that higher-income individuals are not all that likely to move to another state just to avoid getting a higher tax bill.

The data for the study comes from 13 years of tax data and 45 million tax records of individuals with reported annual incomes of at least $1 million. Although the authors of the study concluded that millionaire tax flight does happen, they noted that this is only true “at the margins of significance.” In fact, just 2.4 percent of millionaires typically change state residences in a given year, compared to 2.9 percent of lower-income taxpayers.

Contrary to popular belief, noted the study’s authors, rich people are not more mobile than anyone else. That’s because high-income individuals often have strong ties to their communities, with those connections usually affecting their business relationships. Additionally, rich people are more likely to be married and have kids, which can also make it harder for them to suddenly move to another state.

What Are the Implications of the Study?

The recent study found that the departure of rich people from New Jersey, and other states with high tax rates, does not necessarily have a negative impact on overall tax revenues. The researchers concluded that a state that raised its top tax rate by as much as 10 percent would probably lose just one percent of all millionaire residents.

The startling results of the study could have serious implications for state legislators who are drafting tax laws. For example, New Jersey lawmakers may not be so inclined to lower state tax rates on the rich if they believe that higher taxation on millionaires won’t lead to a mass exodus of businesses.

For more information, view the Yahoo.com article, “Higher Taxes Don’t Scare Millionaires into Fleeing Their Homes after All.”

 

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