Do millionaires move to take advantage of lower state tax rates? Yes, but not much, says this 2016 study in the American Sociological Review.
Stanford researchers analyzed all U.S. tax returns from million-dollar-plus earners from 1999 through 2011. They discovered a small correlation between state tax rates and net migration of millionaires. For the average state—i.e., out of an average millionaire population of 9,000—”a one-point tax increase leads to 12 fewer in-migrations and 11 additional out-migrations, for a total population loss of 23 millionaire households” [p. 434].
However, balmy Florida generates most of the low-tax attraction identified in this study; other low-tax states show no significant advantage.
Numerous other factors make millionaires less likely to move than folks making five figures or less. Their success comes in significant part from their “embeddedness” in the community: their connections with local and state leaders help them make more money. Millionaires are more likely married, have children at home, and own businesses.
The study finds one-time millionaires “show no sensitivity to the top tax rate.” Persistent millionaires “are more sensitive to these rates” but are also less likely to move than one-time strike-it-richers, likely because their ongoing success is based on their ongoing ties to their communities.
The study finds limited evidence of millionaires clustering on the low-tax side of borders between states with notably different tax policies; however, looking at eight tax policy changes of one percentage point or more over the period of the study, the researchers find no evidence in border regions of policy changes leading to observable changes in the millionaire population.
Rich folks pay attention to tax policy, but numerous other factors weigh on their decisions to move or, more likely, to stay put. If we craft tax policy with the intent of luring millionaires, we are thus pulling at heavy fish disinclined to swim with a very thin string.
Well, Lederman is one. Research might find another one or two coming to South Dakota, but, the article and research presented seem valid to me. In the middle of the winter when it is – 5 degrees and the wind is blowing and there is snow and/or ice everywhere, would a person really move to South Dakota over Florida? No. Not unless they were just a bit nuts. I know that look in the eye of a person who has moved to South Dakota from a more temperate climate and are experiencing cabin fever. They start mumbling about the lack of good restaurants, bookstores, newspapers, etc. They don’t last long after that. Millionaire ranchers are born and raised here, and they prefer places with fewer people than Florida, but millionaires from other states (other than Iowa, Nebraska, Wyoming, North Dakota) will not be wild about moving here.
If Dan Lederman is the best we get from low-tax policy, colonizing the extreme corner of the state as a home base while he does most of his day job in Iowa, then that’s enough reason for me to say let’s impose a state income tax. Flush out the Ledermans, build the civic institutions that draw civic-minded citizens!