MASSACHUSETTS LEGISLATORS APPROVED the so-called Fair Share Amendment last week, setting the stage for it to appear on the 2018 statewide ballot, where voters will decide whether to impose a “millionaire’s tax” on top income-earners to fund transportation and education.
Critics will undoubtedly raise one important question: If the state passes this tax, will large numbers of millionaires move away?
Big data can answer this question, since Massachusetts is not the first to have a tax on very high incomes. And federal income tax data contains a virtual census of America’s millionaires, showing where they live and where they move. Are millionaires highly mobile? Do they tend to move from high-tax to low-tax states?
I have studied these issues for years, working with a colleague at Stanford University and with researchers at the US Department of Treasury. We analyzed the (de-identified) tax returns of every million-dollar income earner in the United States over 13 years.
Here’s the bottom line: Overall, millionaires are deeply embedded in place.
Millionaires tend to stay in the states where they live and where they became successful. Often, the very things that made them millionaires (like a lucrative job, a successful business, or a powerful set of connections and personal contacts) make it difficult for them to pick up and move. They also tend to have families and children, and be long past the age when migration is common. The annual state-to-state migration rate of millionaires is only 2.4 percent – much lower, in fact, than the migration rate among the poor (4.5 percent).
When millionaires do move, it is usually for personal reasons rather than because of taxes. Often, they move to states with the same or even higher income tax rates. When some move out, others move in. The notable exception is Florida – a land of sunshine, golf courses, and no state income tax. This state is the single favorite destination of mobile millionaires. States that pass millionaire taxes are likely to see some additional millionaires moving to Florida. But, based on the experience of other states, the migrations are too small to matter very much. The amount of additional, tax-induced migration from modestly higher top tax rate states — even over the long term — represents a tiny fraction of the millionaire population. More than 99 percent of millionaires remain in state. Like others that have passed a millionaire tax, Massachusetts will raise substantial new revenues.
The highest migration rates in America are not among the rich, but rather among young people fresh out of college or graduate school. Young graduates have an annual state-to-state migration rate (12 percent) that is five times that of millionaires.
States have little ability to attract the highest-income earners, but they can work to attract and retain a pipeline of future high-income earners. These young people are deciding where to live long before they hit their peak income-earning years (which usually come in their 50s). Right now, they do not care much about millionaire taxes, because if they ever pay the tax, it will be decades in the future. And once they have an established career, they are not likely to move again.
Millionaire taxes are paid by people with late-career success and good fortune. Used prudently, the tax dollars can fund education, infrastructure, and public services that matter most for young, early-career individuals. In this sense, taxes on millionaires can be a way for late-career elites to help endow a prosperous future for the next generation.
Cristobal Young is an assistant professor of sociology at Stanford University. His forthcoming book is called The Myth of Millionaire Tax Flight: Why Place Still Matters for the Rich.