RAISE TAXES – THE RICH WILL MOVE…
It’s an argument we’ve heard in Connecticut a number of times.
Just last year, State Representative Lile Gibbons, the Greenwich Republican whose district includes the Greenwich homes with waterfront views, warned that if the legislature increased the estate tax “People just aren’t going to stay” in Connecticut. Over the years many other Republican elected officials, including Jodi Rell, and business organizations have said the same thing.
Their argument is that if Connecticut raises the income tax or the estate tax on the wealthy the result will be that many wealthy taxpayers will simply shift their tax homes to locations with lower taxes.
Connecticut Republicans are not alone in making these dire predictions. Conservative commentators are constantly making similar claims. At the end of December 2010, an editorial in the venerable Wall Street Journal once again opined that the direct result of higher taxes on the wealthy is that many of them decide to sell their homes, leave their communities and flee to lower tax jurisdictions.
The editors of the WSJ used a recent report in the state of Oregon to back their claim, In 2009 Oregon, with a majority vote of its state legislature and the approval of its voters in a state-wide referendum dramatically increased its state income tax. The rate for those making more than $500,000 was raised to 11% and the rate on those making $250,000 to $500,000 increased to increase to 10.8%.
A year later, when a report was released that Oregon has collected less revenue than projected, the WSJ wrote that Oregon’s wealthy had “fled the state”.
But wait, it turns out that nothing of the sort occurred. Rather than a wholesale dash for the border, the number of tax returns filed in Oregon actually went up. That said, as a result of the deep recession that is dragging down the country, it turns out that a number of Oregon’s wealthiest taxpayers where no longer as wealthy as they once were and thus fell below the new “soak the rich” income tax rates.
The “if you tax them, they will flee” myth was further busted in 2010, when a major international financial firm that tracks the marketing behavior of millionaires released their most recent report. According to Phoenix Affluent Market’s data, the overall number of households making more than a million dollars actually increased by about 8% to 5.6 million.
The report, which measures the number of millionaires per capita in every state, discovered that “two of the states with the “highest marginal income-tax rates” also had the highest number of millionaires per capita.”
The author of “The Wealth Report”, Robert Frank, who writes for the news division of the Wall Street Journal (rather than the editorial department), wrote “Hawaii, with the greatest number of per capita millionaires levies an 11% tax rate on those earning $200,000 or more. Maryland, the state with the 2nd greatest number of millionaires targets its wealthy with a special millionaire’s tax rate of 6.25% and New Jersey, the state with the 3rd largest number of millionaires has a rate of 10.75% on those households earning more than $1 million a year.
Frank went on to “This isn’t to say that taxes don’t matter to the wealthy. They do. A lot.” But he also noted that “some states with very low marginal income tax rates, such as Connecticut and Alaska, also ranked high on the density list.”
To explain the apparent paradox that many wealthy people live in higher tax jurisdictions, Frank’s piece quotes the Managing Director of the Phoenix based consulting firm that released that study. According to them, “…Hawaii, Maryland, New Jersey, and Connecticut all share some important distinctions: they are small states with large concentrations of highly educated professionals and business owners, which are key ingredients to growing wealth…in general, most high-net-worth households don’t base their living decision on tax rates, but on things like quality of life, access to good education, infrastructure and culture.”
Connecticut’s wealthiest citizens presently pay a 6.5% income tax, far below what they would pay if they moved to New York or New Jersey (not to mention if they decided to live in New York City. Even if Connecticut raised its income tax on those making more than a million dollars by a whopping 50%, the rate paid would increase to a point where it is on par with the other jurisdictions in the tri-state region.
To suggest that if we increase taxes on the wealthy they will flee is not only not true, but intellectually dishonest. Even studies produced by our own state government reveal the truth. In 2007 the Connecticut General Assembly examined out-migration. While it found that the “largest number of individuals leaving Connecticut — 27,773 — moved to Florida” it also revealed that those who moved into Connecticut during the same period “had, on average, higher incomes” and “second-favorite destination for residents leaving the state was North Carolina, which has an estate tax and an income tax” that is on par with Connecticut.
Oh and what are the state’s with the highest number of millionaires? Hawaii with 6.93%, Maryland 6.79%, New Jersey 6.69%, Connecticut 6.65%, Massachusetts 5.98%, Alaska 5.97%, Virginia 5.94%, New Hampshire 5.79%, California 5.66% and Washington, D.C. with 5.53%
For more information on this issue check out the following sources:
Wall Street Journal: http://online.wsj.com/article/SB10001424052748704034804576026233823935442.html
WSJ’s Robert Frank; http://blogs.wsj.com/wealth/2010/09/28/high-tax-states-still-grow-millionaires/,
Citizens for Tax Justice: http://www.ctj.org/taxjusticedigest/archive/2011/01/more_on_the_journals_bogus_ore.php
And: http://www.phoenixmi.com/images/uploads/pdf_upload/StateRankingsMillionaires20062010.pdf, http://www.offthechartsblog.org/many-wealthy-moving-down-not-out/