FORBES: Don’t Be Fooled, High Taxes Scare Millionaires Into Other States
In a recent piece for CNBC, Robert Frank contends that state taxesmake “little difference” in where millionaires live. However, my research – based on nearly two decades’ worth of Internal Revenue Service and U.S. Census Bureau data – certainly suggests otherwise.
Frank cites a UBS and Wealth-X study that examines a static and relatively narrow dataset: millionaires’ states of residence during the past year. My book How Money Walks, on the other hand, looks at long-term trends. These trends, which illuminate where millionaires have moved in the past and suggest where they might move in the future, paint a much fuller picture than just one year’s worth of data.
The overarching trend is that money is leaving high-tax states and moving to lower-tax states. Yes, California has historically been the nation’s tech mecca, and yes, New York is the financial hub – but those attributes do little to change the fact that both states have consistently lost residents and income, year after year. California lost $45.27 billion in net adjusted gross income between 1992 and 2010; during that same timeframe, New York saw $68.10 billion move outside of its borders.
The UBS and Wealth-X study hones in on one year of data, while our massive dataset allows us to look both backward and forward. The trend lines show that low- and no-tax states are gaining population and wealth more quickly than high-tax states, and that urban centers in no-tax states (such as Miami, Austin, Seattle, and Las Vegas) are the growth engines of tomorrow.
The limited data upon which Frank bases his argument is problematic. So is the definition of the term “millionaire.” The number of millionaires fluctuates wildly from year to year, due to the cyclical nature of capital gains. Multi-year data can tell us much about where people and money move; a mere twelve months’ worth is far less informative. Plus, most “millionaires” carry this distinction for a year only, meaning that we must examine a state’s percentage of millionaire households over a long timeframe in order to draw any substantive conclusions.
While we can quibble about anecdotes – which ultra-rich person moved where, and why – the unequivocal fact remains that money is walking from high-tax states to low- and no-tax states. This fact applies not just to millionaires, but also to the hundreds of thousands of middle-class workers and small businesspeople who make up the true backbone of the economy. To them, state taxes definitely do make a difference.