One of the clarion calls of this year’s presidential election, at least in terms of what Bernie Sanders and Hillary Clinton say they will do if either is chosen as the Democratic nominee and then goes on to win, is raising taxes on the wealthy.
However, the other side of that argument is that higher taxes on millionaires could lead to flight. It’s long been assumed that raising state income taxes on millionaires results in the rich fleeing to states where income taxes are lower — or non-existent. Stories of millionaires leaving states like New York, Oregon, and California in favor of Florida, Texas, and Tennessee abound. But is this really case?
According to new research, millionaires might not actually be leaving when they see higher taxes. It might be too hard for them to uproot their lives and leave just to save a few hundred dollars or a few thousand dollars on their taxes.
Few Rich People Move for Tax Reasons
A 13-year study conducted by researchers at the Treasury Department and Stanford University indicates that few rich people actually change states for tax reasons. Only about 2.2% of millionaires move in order to reduce the taxes they pay. In fact, according to the research, the rich are actually less likely to move than the poor.
Part of the reason that many millionaires stick around, even though they have to pay higher taxes, has to do with the fact that most of those with that kind of net worth are actually working. They might be lawyers, doctors, business owners, and others. If you built a business in your current town, and you are still involved, it might not make sense to move across the country.
In fact, there are cases where even an easy commute doesn’t prompt millionaires to cross state lines. The study cites the wealthy living on either side of the Washington and Oregon border. It would be easy, in many cases, to make a home in Washington, where there is no state income tax, and then commute across the border into Oregon to work. However, even though this is the case, there aren’t very many wealthy who take advantage of this arrangement. Wealthy Oregonians seem content to keep living in Oregon — even though it means paying state income tax.
The main exception to the rule seems to be Florida, according to the information gathered during the research. Out of the 2.2% of millionaires who move to reduce their taxes, nearly all of them chose to move to Florida. The study’s authors speculate that the combination of no state income tax plus the warm weather and sandy beaches, plus easy access to the Caribbean, are the reasons the rich locate to Florida.
In the end, the research seems to indicate that raising taxes a modest amount probably won’t result in rich flight out of a state. The millionaires who do move aren’t likely to result in a large amount of lost revenue for the state — at least not enough to prevent a net benefit from higher taxes.