The New York Times reports today that "there is surprisingly little evidence to support the proposition that rich New Yorkers would bolt if forced to pay higher income taxes."
The New York Times
March 19, 2009
Taxes Not Seen as Making the Rich Flee New York
By NICHOLAS CONFESSORE
It is perhaps the most potent argument offered by those who oppose increasing the income tax on wealthy New Yorkers: If you raise it, they will flee.
That case has been made repeatedly by Gov. David A. Paterson, who says that higher taxes should be a last resort. It has been featured in a campaign by Taxpayers for an Affordable New York, a coalition of real estate and business interests. And it has been on the mind of Mayor Michael R. Bloomberg, New York City's richest person, who said in a radio interview, "You can't tax too much those that can move."
Yet there is surprisingly little evidence to support the proposition that rich New Yorkers would bolt if forced to pay higher income taxes. Though tracking the movement of wealthy taxpayers from state to state is difficult, experts on public finance and migration say they have yet to document a substantial "rich drain" in states that have raised income taxes in recent years.
"At the level we're talking about, there's no quantitative evidence that it affects the mobility decisions of affluent taxpayers," said Douglas S. Massey, a demographer at Princeton University and president of the American Academy of Political and Social Science.
Pressured by enormous budget deficits, officials in Illinois, Hawaii, Wisconsin and New Jersey are considering new taxes on the rich. Lawmakers in Albany have discussed several proposals, including increases for those earning more than $250,000.
But even experts who oppose such taxes on other grounds - out of fear that they will retard economic growth and innovation, or encourage lawmakers to indulge in bouts of new spending - concede that there is not much evidence that raising taxes on the wealthy would drive out a significant number.
"I kind of clench my teeth every time Paterson says people will leave," said Edmund J. McMahon, director of the Empire Center for New York State Policy, a conservative-leaning research group that has advocated for sharp cuts in spending to balance New York's budget.
"It is the selling point. It's also a dumb point," Mr. McMahon added. "Nobody says your wealthy enclaves will shrink dramatically. What they say is that your economy will suffer."
New Jersey raised taxes on the wealthy in 2004, increasing by 2.6 percent the tax rate levied on those making more than $500,000 a year; and Gov. Jon S. Corzine this month proposed a new increase on high earners.
But a study by Professor Massey and two colleagues, published in September, estimated that the previous tax increase cost New Jersey only 50 to 350 existing "half-millionaire" households - a relatively small number against the total of 44,000 such households in the state.
While those departures cost the state about $38 million a year in revenue, the study estimates, the higher taxes levied on those who stayed have brought in an average of $895 million a year. Also in 2004, California voters approved a 1 percent income tax surcharge on personal income over $1 million, and Silicon Valley and Beverly Hills appear to remain well populated with the wealthy. From 2004 to 2007, according to a study by the California Budget Project, a left-leaning research organization, the number of millionaire taxpayers rose by close to 50 percent, well outpacing the 8.6 percent growth in the total number of those paying personal income tax.
"It is one of the oft-cited urban legends in California politics - that the rich are leaving California because of higher taxes," said Jean M. Ross, the project's executive director.