A number of states are considering raising taxes for wealthy residents and some have argued that such taxes push wealthy people to move to another state. Here is a brief summary of some research on what happened in New Jersey after a millionaire’s tax was implemented in 2004:
A 2004 “millionaire’s tax” in New Jersey had little effect on migration, according to a study by Stanford University sociologist Cristobal Young and Princeton University sociologist Charles Varner published this year in the National Tax Journal. Moving from California to escape taxes is even more difficult.
“Many people in New Jersey could move 30 or 40 miles and find themselves in lower-tax Connecticut or Pennsylvania,” Young said in an email. “If you are in the Bay Area, it is a 500- to 700-mile move to competing urban areas such as Las Vegas or Phoenix. That is a tough move – you will be starting a new life.”
The New Jersey Department of the Treasury issued its own research in October that countered the Young-Varner study. The department is led by an appointee of Republican Gov. Chris Christie, a vocal opponent of a new “millionaire’s tax.”
In a state with 8.7 million residents, the department said that all tax increases – not just those on the wealthy – resulted in 20,000 fewer taxpayers.
So it sounds like both research studies could be right? Though I haven’t read either study, the loss of 20,000 taxpayers from New Jersey doesn’t sound like much. Additionally, there are a lot of reasons people could move and taxes are just one part of the larger business climate and cultural setting. Without clear trends in the data or interviews or surveys with people who leave, it would be hard to know that taxes were what pushed people out of the state.
The argument that it might be more difficult to move out of California because of greater geographic isolation is intriguing. I would think that distance matters less than other characteristics that draw people to California such as the weather and exciting cities. If geographic isolation is a key factor, we would see more movement in metropolitan areas that straddle states, such as New York City or Chicago where residents who want to protest or move because of taxes could live over the border in Indiana or Wisconsin and still be part of the region.
When states consider higher taxes for millionaires, why haven’t more millionaires acted like corporations who then threaten to leave and force tax breaks? Would it be too easy to vilify individual wealthy residents?
In the end, I wonder about the validity of arguments that people move solely in response to tax rates.