We retired Tax Justice Blog in April 2017. For new content on issues related to tax justice, go to www.justtaxesblog.org
It is an article of faith among anti-tax activists that cutting taxes makes states more competitive. Texas Gov. Rick Perry and Florida Gov. Rick Scott frequently invoke the gospel of low taxes when they poach jobs in blue states – never mind the fact that some of these states are doing just as well or better on economic indicators like unemployment and economic growth. The media is full of anecdotes of the uber-wealthy – from French actor Gerard Depardieu to pro-golfer Phil Mickelson – fleeing high taxes for greener, cheaper pastures. The only problem is that anecdotes are not the same as empirical evidence.
A new study released by the New York City Independent Budget Office confirms what countless other studies already have: the wealthy aren’t ditching Manhattan for Manhattan, Kansas. Of households that left the city in 2012, 42 percent of households earning over $500,000 annually moved to other locations in New York State; second place was New Jersey (22 percent), which has had a “millionaire’s tax” since 2004. Third place is Connecticut (12 percent), hardly a tax haven. California took fourth place, with 9 percent. In total, 86 percent of wealthy households moving from NYC went to these “high-tax” states, almost double the proportion of non-wealthy households moving to the same places.
Again, this is nothing new. In 2012, ITEP issued a report finding that states with high income tax rates outperformed states with no income tax over the past decade. A 2011 study on the effect of New Jersey’s millionaire tax found that there was no difference in migration patterns between high-earners impacted by the tax (those who made over $500,000) and high-earners who weren’t (those in the $200,000 to $500,000 range). And a report from the Center on Budget and Policy Priorities notes that interstate moves are rare, for rich and poor alike; between 2001 and 2010, only 1.7 percent of U.S. residents per year moved from one state to another, and many of these moves were between states in the same metropolitan region. The evidence indicates that people – and companies, for that matter – take into account a variety of non-tax factors when making location decisions.
Of course, the reason that this pernicious myth persists is that it’s effective in spooking state lawmakers and officials – who are loath to risk job and revenue losses. The threat of losses is enough to convince politicians to slash tax rates for the wealthy and give generous breaks to companies. New Jersey has given out $4 billion in tax subsidies to businesses under Gov. Chris Christie (R), far more than the $1.2 billion given out in the decade preceding his time as governor. Prudential Insurance was given $250.8 million to move its headquarters a few blocks down the street. On average, the state pays $47,916 for each promised job.
State officials would do better to make the public investments – in infrastructure, education, and workforce training – that make them attractive locations for residents and businesses alike, rather than fretting about the location decisions of the rich and corporations.