David Tepper — one of the richest people in America — relocated from New Jersey to Florida in 2016. In doing so, he reignited a heated debate about tax flight among the rich. Tepper is so wealthy that his move potentially had significant fiscal implications for New Jersey’s budget. While Tepper did not publicly discuss his reasons for the move, many commentators attributed it to New Jersey’s millionaire tax. Indeed, Tepper seemed to confirm Gov. Chris Christie’s warning: “Ladies and Gentlemen, if you tax them, they will leave.”
This raises a much broader question — do states with high income taxes drive away people with high incomes? On the one hand, top income earners might flee if they are ‘transitory millionaires’ who don’t care so much about where they live, but care deeply about minimizing their taxes. On the other, top income earners might want to stay despite high taxes, if they are “embedded elites” who don’t want to leave the places that they have been so successful in.
To answer this question, Charles Varner, Ithai Z. Lurie, Richard Prisinzano and I undertook a study, which has just been published in the American Sociological Review. Our research looked at the migration of million-dollar income-earners in the United States, using big data from administrative tax records. The dataset includes 45 million anonymized tax records belonging to high income earners over 13 years — showing where millionaires live and where they move.
Here are our key findings:
There are a lot of millionaires out there.
In a typical year, about 500,000 individuals earn one million dollars or more in annual income. This group is more exclusive than the “one percent” — specifically, they are the 0.3 percent. On average, they earn about $1.7 million in a year —roughly 32 times the median household income.
They live in high tax jurisdictions, too.
Millionaires are no less likely to live in states with high income taxes (such as New Jersey or California) than states with low or zero income taxes (such as Texas or Florida).
Millionaires don’t like to move.
Migration Rates by Income Level, 1999 to 2011. (Office of Tax Analysis data)
The rate of migration among millionaires is relatively low — lower than the general public, and much lower than the poor. In a typical year, 2.4 percent of millionaires move across state lines, compared to 4.5 percent among the poor.
States shouldn’t worry too much about driving millionaires away.
There is a grain of truth in worries about millionaire tax flight. When millionaires migrate, they are more likely to move to a state with a lower tax rate. However, the effect is small and has little impact on a state’s overall “stock” of millionaires.
For the typical state, a millionaire tax surcharge equal to one percent of millionaires’ total income would have a predictable migration effect. About 0.2 percent of the millionaire population would move to a lower-tax state. The remaining 99.8 percent of millionaires would stay.
If policy makers just wanted to maximize tax revenues, they would raise a lot more money by charging higher state taxes on million dollar incomes. If used effectively, these revenues support education, infrastructure, and services that make the state a better place to live.
Millionaires may be looking for sunshine, not tax breaks.
Almost all of the observed millionaire tax migration in the United States is to Florida. Other low-tax states, such as Texas, Tennessee or New Hampshire, don’t seem to be particularly attractive destinations. Obviously, Florida has much to recommend it besides low tax rates. This makes it unclear whether Florida is attractive because of its zero income tax rate, its tropical climate and geographic proximity to New York, or some combination.
Our central conclusion is that millionaires are deeply embedded in the places where they become successful. Few top income earners move across state lines and even fewer move for obvious tax reasons. Overall, our findings indicate that simple intuitions and arguments about elite mobility and tax flight are largely wrong-headed. While some millionaires have moved to lower tax states over the years 1999-2011, the flows have been too small to meaningfully change the geography of the economic elite in America.