Do Millionaires Really Move Away When Their Taxes Go Up?
Policy + Politics

Do Millionaires Really Move Away When Their Taxes Go Up?

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A few years ago, after California voters approved a tax hike on residents earning $1 million or more, golfer Phil Mickelson vented to the press that the higher rates, which he estimated could bring his total tax rate to 62 or 63 percent, might lead him to make some “drastic changes” — like leaving the state.

The comments by the four-time major champion, whose net worth was almost $180 million at the time, sparked an immediate backlash.

Related: How To Become an Everyday Millionaire…From Those Who’ve Done It

Mickelson quickly apologized for publicly discussing “a personal matter.” While the golfer may have other financial concerns these days, the argument that high taxes might cause millionaires to move to lower-tax locations — and drive away jobs, too — still comes up regularly in states from New Jersey to California.

As with proposals to raise the minimum wage, higher taxes on the wealthy has been the subject of much economic debate, and some contradictory studies. But a new report published in the June issue of the American Sociological Review finds that millionaire taxes don’t really cause wealthy residents to flee. “We find that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance,” Cristobal Young, an assistant professor of sociology at Stanford University, and his co-authors write.

The study, conducted by researchers at Stanford and the Office of Tax Analysis at the Treasury Department, found that although millionaire tax flight does occur, it’s a fairly minor risk. Family responsibilities and business concerns seem to be more pressing factors than tax rates when millionaires decide where to live.

The findings were based on mountain of data from federal income tax returns for every U.S. tax filer who earned $1 million or more between 1999 and 2011.

Related: 7 Top Republicans Who Taxed the Super Rich

In any given year, researchers found that half a million Americans reported incomes of $1 million or more (in constant 2005 dollars). Out of that number, only 12,000 millionaires changed states each year, translating to a migration rate of 2.4 percent. The researchers estimate that if each state imposed the same tax rate, the migration rate would be 2.2 percent, which works out to about 250 fewer millionaire migrations between states each year. To put those numbers in context, the migration rate of the general public is 2.9 percent. Low-income tax filers, those who earn around $10,000 a year, have the highest rates of migration at 4.5 percent.

“The rich are different from the population. They more often have family responsibilities — spouses and school-age children that embed them in place,” the report says. “They own businesses that tie them to a place. And their elite income itself embeds them in place: millionaires are not searching for economic opportunity — they have found it.”

The study also notes that many millionaires today rely on earnings from their jobs, rather than on inherited wealth. The very affluent are managers, doctors, lawyers and financial executives who are still at the peak of their career. A move might be disruptive, and thus cost them more than they stand to save on taxes.

But the idea of millionaire tax flight isn’t entirely fiction — when millionaires do move, they’re more likely to move to a state that imposes a lower tax rate. Other factors play a part, too, when it comes to choosing a destination: A disproportionate number of millionaires move to Florida, compared to the other eight states that also don’t have income taxes.

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