Do state ‘millionaire taxes’ send the rich packing?

Raise taxes on the rich and they’ll move out of state! That’s one of the principal arguments against increasing tax rates on the highest earners–what is commonly referred to as a “millionaire tax.” But is that really the case?

After studying tax and migration patterns in New Jersey, which bumped its top rate for filers earning $500,000 or more by 2.6 percentage points, to 8.97 percent, two researchers say no–at least not for most wealthy taxpayers. In an article (pdf) published in the National Tax Journal, Cristobal Young of Stanford University and Charles Varner of Princeton University say the change had a “minimal effect” on migration of millionaires.

Although the net out-migration of taxpayers subject to the higher levy increased slightly after 2004, Young and Varner note, so did the out-migration of other wealthy taxpayers not subject to the top rate. They suggest that New Jersey’s booming housing market might have made it attractive to the owners of high-end homes to cash in on their property values and relocate.

Two groups of wealthy taxpayers did show a greater sensitivity to tax rates, the researchers say: People of retirement age and people whose income comes entirely from investments. Both groups–which overlap to a large degree–are not tied to jobs and thus can more easily move to a lower-tax state, they note.