This article first appeared in the Clarion.
Supporters of tax cuts for the rich never get tired of repeating the same claim: If you tax rich people, they will leave.
Governor Cuomo has said it. Mayor Bloomberg has said it. The Partnership for New York City, a group of 200 CEOs, has said it. But despite how often this line is repeated, there’s no evidence for the claim that wealthy populations are moving in response to tax rates – and quite a bit of evidence pointing in the opposite direction.
“Taxes Not Seen as Making the Rich Flee New York,” concluded a 2009 analysis/article in the New York Times that looked at the data behind the claims. The Wall Street Journal’s Wealth Report reached the same conclusion in February 2011: “New York’s Vanishing Millionaires – and Other Myths” was how the Journal summed it up.
Even E.J. McMahon of the right-wing Manhattan Institute concedes the point. “I kind of clench my teeth every time [then-Gov.] Paterson says people will leave,” he told the Times in 2009. “It is the selling point. It’s also a dumb point,” McMahon said. “Nobody says your wealthy enclaves will shrink dramatically.”
Here’s some of what recent studies have found:
• From 2003-2005, New York imposed a temporary tax hike on its highest-income residents. During the years that surcharge was in place, the state saw a 30 percent growth in high-income tax returns.
• New York consistently ranks high in its percentage of high-net-worth households: currently New York is 12th among the 50 states. Significantly, four of the states that outrank New York have top income tax rates that are as high or higher.
• The current income tax surcharge on the highest-paid people in New York was adopted in 2009. In the year after these high-end tax rates went into effect, the number of high-net-worth households in the state grew by more than 10 percent.
• California voters raised the tax rate on millionaire earners to 10.3 percent – higher than New York’s current top rate. The outcome there? California’s millionaire households increased by nearly 38 percent over the three years after the voter-approved tax hike took effect in 2005 – while the total number of taxpayers rose only 4.2 percent.
• A similar trend – disproportionate growth of high-income households – also followed when California temporarily raised high-end income taxes in the 1990s. The California Budget Project calls the idea that rich people have left the state due to taxes “one of the oft-cited urban legends in California politics.”
When the number of high-income households in a state increases, it can be hard to distinguish how much this stems from incomes rising in the upper brackets, and how much it stems from people moving from one state to another. Still, it’s striking that none of these studies found evidence for predictions that the rich will flee from higher taxes.
Following the passage of a “half-millionaire” tax in New Jersey (at the same income level and rate as New York’s current surcharge), Princeton University researchers conducted a detailed analysis of individual New Jersey tax data before and after the tax change. The bottom line? New Jersey’s tax increase has raised close to $1 billion a year – and led fewer than 1 percent of affected households to consider a move out of state.
The authors of the Princeton study noted the difficulty of pinning down the motivating factors for migration patterns. But here’s what they did determine: people moving out of New Jersey are more likely to be on the lower end of the income scale, and move to places with lower housing costs. Similarly, a 2007 study by the New York City Comptroller looked at population data for a recent period when New York City temporarily increased income taxes on top earners (2003-2005). According to the New York Times, the city’s study found that “households with incomes of $250,000 and higher were the least likely to leave.”
It’s possible that some wealthy people may consider moving out of state when their taxes rise, but studies have yet to demonstrate any statistically significant evidence for the idea. Rush Limbaugh loudly declared his departure after New York’s current surcharge was approved, but he’s likely outnumbered by others who move into New York for a job opportunity, or to be near family, or to take advantage of the concentration of business and cultural amenities supported here.
The Wall Street Journal’s Wealth Report pressed the head of the Partnership for New York City for hard data to back up the Partnership’s claims for rich people leaving New York due to tax rates. “It’s a very difficult thing to measure,” she said, and added, “We get a lot of it anecdotally. Our evidence is from conversations with lots of high earners.”
The lack of sound data methods aside, there’s reason for skepticism when anti-tax advocates base their claims on individual examples. The Partnership consistently advocates against taxes for high-income earners, so it’s reasonable to think that its anecdotal sample is not random. David Thompson of Phoenix Affluent Market, a firm that provides state rankings of high-net-worth households, commented on the fact that some of the top-ranked states have high income tax rates on the wealthy. “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,” he told the Journal’s Wealth Report. New York, particularly Manhattan, has a special advantage for attracting and retaining wealthy residents: its cultural and business amenities and infrastructure. The fact that the vast majority of the state’s income is generated in New York City suggests that even relatively high state and city taxes – not to mention the cost of real estate and private school tuition – don’t scare off high earners.
Meanwhile, everyday New Yorkers face limited job prospects and declining state services. As BMCC student Jenny Perdomo told Clarion during the fight over last year’s state budget, “I think the people who are actually moving out of the city are not the rich. They’re the hard-working people, like my sister, who just recently moved to North Carolina.”
If the surcharge on New York’s highest incomes is allowed to expire, public services will deteriorate – and regular New Yorkers will suffer. We should make sure that budget decisions are based on facts, not myths – no matter how often those myths are repeated.