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Millionaire Migration and the Taxation of Top Incomes

Evidence from Big Administrative Data

Presentation for the DC Tax Revision Commission

Cristobal Young, Cornell University

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Case Study: The New Jersey Millionaire Tax

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New Jersey marginal tax rates

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NJ effective�individual income tax rates

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New York Metro Area

Top Tax Rates in NY Metro Area:

5 boroughs: 10.5%

New Jersey: 8.97%

New York: 6.85%

Connecticut: 5.0%

Pennsylvania: 3.07%

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Growing Millionaire Population

+ 35%

since 2003

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Net out-migrants per thousand households, by income, 2000-2003

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Net out-migrants per thousand households, by income, 2000-2003

2000-2003

Theoretical expectation, 2004-2007

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Shift in Migration after the new tax

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Key Findings from “Most Likely” NJ Case

1) Growing millionaire population, even with some out-migration

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Key Findings from “Most Likely” NJ Case

1) Growing millionaire population, even with some out-migration

2) Tax flight estimate: 1 per 2,000 millionaires moved for tax reasons

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Key Findings from “Most Likely” NJ Case

1) Growing millionaire population, even with some out-migration

2) Tax flight estimate: 1 per 2,000 millionaires moved for tax reasons

3) $1 billion in new revenues per year, and modest reduction in income inequality

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Replication by Gov. Christie’s Chief Economist Found Same Results

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Housing Price Index for New Jersey and the United States

-

0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

2000

2001

2002

2003

2004

2005

2006

2007

New Jersey

U.S. Average

Source: Federal Housing Finance Agency, All Transactions Index

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Mobile Millionaires

or

Embedded Elites ?

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“Taxing the Rich: How Incentives and Embeddedness Shape Millionaire Tax Flight.” 2022. With Ithai Lurie

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IRS Data

Individual records for all millionaire tax filers, for all states, 1999-2011 (updates to 2021)

N ≈ 45,000,000

3.7 million unique “millionaires”

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IRS Data

Individual records for all millionaire tax filers, for all states, 1999-2011

N ≈ 45,000,000

3.7 million unique “millionaires”

Census-scale panel data on where millionaires live

and where they move to.

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IRS Data

For comparison, pulled a 1% sample of all filers

N (all population) ≈24,000,000

2.6 million unique tax filers.

Run separate migration analyses for millionaires and the general population

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Measuring Migration

Track people as they change the state from which they file their federal tax returns

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Q1. Where do Millionaires Live?

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Millionaires per 1,000 Population

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Q2. Are Millionaires Highly Mobile?

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Migration Rates by Income, 1999-2011

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Migration Rates by Income, 1999-2011

Millionaires overall: 2.4%

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Q3. How Much Tax-Induced Migration?

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Do millionaires systematically move from high-tax to low-tax states?

Q3. How Much Tax-Induced Migration?

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1999 - 2011

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Moving to Higher-Tax v. Lower-Tax States

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Moving to Higher-Tax v. Lower-Tax States

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Moving to Higher-Tax v. Lower-Tax States

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15% “excess”

migration

Moving to Higher-Tax v. Lower-Tax States

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Millionaire migration rate: 2.4%

15% of 2.4% ≈ tax migration

≈ 0.3% millionaire

tax-migration rate

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Millionaire migration rate: 2.4%

15% of 2.4% ≈ tax migration

≈ 0.3% millionaire

tax-migration rate

Between 1999 - 2011:

165,000 millionaire migrations

20,000 tax-related migrations

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Millionaire migration rate: 2.4%

15% of 2.4% ≈ tax migration

≈ 0.3% millionaire

tax-migration rate

Between 1999 - 2011:

165,000 millionaire migrations

20,000 tax-related migrations

Enough to feed the anecdote mill!

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Should States

Tax Millionaires?

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Should States

Tax Millionaires?

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Revenue-Maximizing Optimal Tax Rates


0.87	73%	0.53
0.80	68%	0.50
0.74	63%	0.48
0.61	53%	0.42
0.47	42%	0.34
0.38	35%	0.29

Top Marginal Tax Rates

If tax migration was zero

If tax migration was very high

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Revenue-Maximizing Optimal Tax Rates


0.87	73%	0.53
0.80	68%	0.50
0.74	63%	0.48
0.61	53%	0.42
0.47	42%	0.34
0.38	35%	0.29

Top Marginal Tax Rates

If tax migration was zero

Current rates in most high-tax states

federal + state income tax rates

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Revenue-Maximizing Optimal Tax Rates


0.87	73%	0.53
0.80	68%	0.50
0.74	63%	0.48
0.61	53%	0.42
0.47	42%	0.34
0.38	35%	0.29

Top Marginal Tax Rates

If tax migration was zero

To rationalize current state tax rates on millionaires -

would need migration effects 8 to 15 times larger

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Millionaire tax flight does sometimes occur.

The magnitude is small

has little impact on the stock of millionaires in a state

Too small to matter for current tax policy

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Updates: 2016-2019

Basic migration parameters are unchanged

Trump tax bill raised taxes on the rich in blue states (capping deductibility of SALT).

* no change in rate of millionaire migration; but those who did move were more likely to land in lower-tax states

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Updates: 2020

COVID-19 Pandemic weakened people’s attachment to place

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Updates: 2020

COVID-19 Pandemic weakened people’s attachment to place

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What’s wrong with the intuition about millionaire migration?

Places are sticky.

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What’s wrong with the intuition about millionaire migration?

Places are sticky.

As people advance in their careers, they accumulate a lot of things that tie them to place:

Marriages

Children

Businesses

Place-specific social capital

Conclusion:

Rich people are the wrong focus. Every state wants more rich people but they are not mobile

Future top earners are highly mobile

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Conclusion:

Rich people are the wrong focus. Every state wants more rich people but they are not mobile

Future top earners are highly mobile

Focus on attracting / retaining people at the beginning of their career

Quality of life, urban amenities, child care, good schools and supports for young families

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Thank you!

Comments:

cristobal.young@cornell.edu

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Trump Tax Bill (2017)

Effect of SALT cap is symmetric:

Tax increases in high-SALT states roughly equal to tax cuts in low-SALT states

Mostly a redistribution of after-tax income

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(fall 2020)

COVID-19 weakened the embeddedness of the elite, with top earners moving to less expensive, lower-tax places while still participating in elite economies. The effect size remains modest. But high-tax states were clearly harmed by COVID migration

At some level, embeddedness is essential to progressive taxation.