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Do millionaires move to avoid high taxes?

November 30, 2012 Leave a comment Go to comments

Cohen, Lai and Steindel found that the rate increase caused 25,000 residents to leave the state by 2011, and cost the state about $150 million in tax revenue. But that is dwarfed by the $1 billion the rate increase brought in. The overall revenue effect of the tax, then, is still positive. Young and Varner found still smaller effects, estimating that 69.7 millionaires left — not 69,700, but a little short of 70 people. This cost the state $16.4 million, the vast majority of which was due to the flight of the top 0.1 percent, or those making over $3 million a year.

Varner and Young have also studied taxes on millionaires imposed in California, and reached similar conclusions. A 2005 high-income tax hike to pay for mental health services was actually associated with a decline in out-migration of millionaires, and cuts to high income taxes in 1996 had no effect on the number of millionaires in the state. By far the most important determinant of whether millionaires move, Varner and Young found, was whether they get divorced or not.

These three studies are in line with the previous literature on millionaire flight, which has found either no effects or very small ones. And if there are no effects within the United States, it’s extremely doubtful there would be any between countries.

What’s more, it’s not clear that any effects the British law had would be relevant for the U.S. tax discussion. Even if the top income tax rate went back up to 39.6 percent, that would still be lower than that of most European countries, which would leave potential tax exiles fewer places to flee. Countries with unusually high rates, by contrast, have more to worry about.

via Do millionaires move to avoid high taxes?.

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