Tax Migration Myth Refuses To Die

Let’s establish a few facts for the last time. Santa Claus isn’t real, and neither is the Easter Bunny. There is no pot of gold at the end of the rainbow. Mutant alligators don’t roam the sewers of New York City. And the fabulously wealthy do not migrate from state to state in search of low tax rates.

We’ve dispelled the “millionaire migration” myth a number of times (see here, here, and here). But it seems thinly-sourced anecdotes beat empirical evidence.

The brouhaha over hedge fund honcho David Tepper’s move from New Jersey to Florida is the latest case in point. A few weeks back, The New York Times published a hand-wringing article that claimed Tepper’s relocation could cost the Garden State hundreds of millions of dollars. Frank Haines, New Jersey’s legislative budget and financial officer, noted that the state “may be facing an unusual degree of income tax forecast risk.” Tepper was one of the wealthiest men in New Jersey, earning more than $6 billion over the past three years; sources claim New Jersey could lose out on $300 million in income tax revenue annually to Tepper’s preference for South Beach over the Jersey Shore.

A number of other publications jumped on the story as well. In Forbes, Laffer lackey Travis Brown crowed, “When the departure of just one resident sends your state’s legislative budget office into a panic – it might be time to take a closer look at your tax policies.” Bloomberg blamed the state’s high marginal tax rates, noting that “1 percent of taxpayers contribute about a third of [income tax] collections.” (To the credit of the New York Times, they identify growing income inequality as one factor in lopsided income tax contributions).

It’s a familiar tale. Before David Tepper, it was Gerard Depardieu and thousands of French citizens fleeing high taxes. And before Depardieu, it was Phil Mickelson suggesting he would take his golf winnings and leave high-tax California for a more millionaire-friendly state. Art Laffer and Travis Brown have built a cottage industry peddling these “tax rate arbitrage” stories to amenable legislators and chambers of commerce around the country. But the claims don’t stand up to the barest scrutiny.

Take the case of New Jersey, at the center of the latest drama. Tepper is one man in a state of 8.9 million. He certainly wasn’t the only person to move out or into the state this year. Many observers have highlighted the increasing numbers of people leaving New Jersey, but the out-migration rate for 2014-15 was just 0.9 people per 1,000 residents; overall population increased by 19,169 over the same period. Moreover, the state increased its number of millionaire residents from 207,200 to 237,000 between 2006 and 2015. In 2014 the state ranked second overall in the percentage of households worth at least $1 million – a fact hard to square with the dire predictions of wealth flight.

Additionally there is a mountain of evidence disproving claims that the wealthy move just to pay a lower marginal tax rate on their higher earnings. If Us Magazine has taught us anything, it’s that stars – financial or otherwise – are just like us: they move for job opportunities, a change in scenery, or for personal reasons. In fact, sources close to David Tepper say he moved to Florida to be closer to his mother and sister.

And yet these tax tall tales persist, because they allow anti-tax advocates to push for low marginal tax rates and regressive policies that are more “friendly” to the wealthy. By focusing on the sad story of one fantastically rich person, they conveniently obscure the forest for one money tree.

For example, these low-tax boosters point to Florida, which has a reputation as a “low-tax” state. But by touting the Sunshine State’s nonexistent income tax, they ignore the rest of the state’s hugely regressive tax structure. As an ITEP report notes, “failing to levy an income tax comes at a cost. In order to pay for state and local government services, Florida’s sales and excise taxes are 18 percent above the national average. Measured relative to personal income, Florida has the 13th highest sales and excise tax collections in the entire country.” The bottom 20 percent in Florida – who earn an annual salary of $10,700 on average – pay almost seven times as much of their income in state taxes as the top 1 percent. These low-income working families face the fourth highest state and local tax bill in the country. Few can afford to move elsewhere, and they certainly don’t get coverage in the New York Times when they do.

This has been the aim of pushers of the tax migration myth all along – to skew state tax policies to the few at the expense of the many. In Connecticut, state officials regularly track and forecast the incomes of their richest 100 residents. When one plutocrat makes noises about moving, state officials meet with them and try to persuade them otherwise. Is this the kind of government we want: a rapid response team hyper-focused on a few dozen billionaires instead of the pressing needs of millions of ordinary citizens? Public policies designed to lure the wealthy instead of promoting broad-based economic growth? A friendly handshake for rich hedge fund owners, and a shakedown for the working poor?

Supply-siders would rather we focus on their anecdotes rather than the questions above.