Millionaire Migration and Taxation of the Elite

Abstract

A growing number of U.S. states have adopted “millionaire taxes” on top income-earners. This increases the progressivity of state tax systems, but it raises concerns about tax flight: elites migrating from high-tax to low-tax states, draining state revenues, and undermining redistributive social policies. Are top income-earners “transitory millionaires” searching for lower-tax places to live? Or are they “embedded elites” who are reluctant to migrate away from places where they have been highly successful? This question is central to understanding the social consequences of progressive taxation. We draw on administrative tax returns for all million-dollar income-earners in the United States over 13 years, tracking the states from which millionaires file their taxes. Our dataset contains 45 million tax records and provides census-scale panel data on top income-earners. We advance two core analyses: (1) state-to-state migration of millionaires over the long-term, and (2) a sharply-focused discontinuity analysis of millionaire population along state borders. We find that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.

New Evidence on State Fiscal Multipliers: Implications for State Policies

“…I want to explore in this subsection the implications of the Moretti and Wilson paper for fiscal multipliers for tax cuts for the top 1 percent. In addition, a paper by Young et al (2016) finds some statistically significant but small effects of state taxes on the migration choices of millionaires, and I want to see what this paper implies for fiscal multipliers for the top 1 percent, whose incomes closely overlap those of the millionaire households considered by Young et al…”

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“…Sophisticated tax planning involves significant fixed costs associated with the setup of complex legal structures and the remuneration of tax planners' human capital (...) A second important form of tax avoidance consists in international tax arbitrage, by locating assets or establishing fiscal residence and/or citizenship in low-tax countries. National tax arbitrage through millionaire migration (Young et al, 2016) would be a third form tax avoidance. of dynamic accounting exercises.…”

“…In parallel to rising inequality, taxation over the rich is now object of growing attention (Scheve and Stasavage, 2016;Young et al, 2016;Ballard-Rosa et al, 2017;Landier and Plantin, 2017;Hatgioannides et al 2018). Ballard-Rosa et al (2017) provide experimental evidence uncovering changes in redistributive preferences in the presence of high inequality, with direct implications on the perception of high income taxation.…”

“…Within the literature on optimal income taxation, Landier and Plantin (2017) point to sophisticated tax plans and international tax arbitrage as two channels by which affluent households respond to progressive taxation. Young et al (2016) exploit the information of 45 million of tax records to document millionaire tax flight across US states. In this way, millionaire migration comes out as a third channel through which affluent households deal with changes in tax progressivity.…”

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“…For example, Hellinger and Encinosa () examine how laws that limit malpractice awards affect the location decisions of physicians while Young et al () examine how state tax laws on millionaires affect their migration decisions.…”