Millionaire Migrations in New Jersey
Is Tax Migration a Myth in Need of Slaying?
Regular readers know the grim delight I take in bursting other peoples’ migration-narrative bubbles. So I have to say, I would love to be the guy who comes up and says, “Actually, taxes have no impact on migration at all!” or, alternatively, “Actually, taxes have a consistently large impact on migration!”
Much to my chagrin, the truth about taxes and migration is incredibly boring. My most recent summary of this question focused on Illinois’ current progressive tax proposal. Basically, I found that IL DOR’s estimate of the tax-only effect on migration was pretty plausible. If we assume Illinois was going to spend new revenues on stuff potential migrants love (classroom instruction, transportation infrastructure, beat cops), then it’s possible a tax hike wouldn’t reduce migration. But if we assume Illinois was going to spend new revenues on stuff potential migrants don’t love (pensions, debt, health & welfare), then IL DOR’s estimate is pretty fair. And we have to assume that tax increases have no relationship to any future bankruptcy or pseudo-bankruptcy, which obviously isn’t true, but the literature on bankruptcy isn’t good enough to let us really estimate this effect.
In other words: it’s reasonable to think higher taxes in Illinois could make out-migration somewhat worse. Not “end of the world” worse. Not “Chicago will be a smoldering ash heap” worse. Somewhat worse. Worse in a way that means, in 10 years, people will notice there are a few emptier neighborhoods here or there, or a few schools can consolidate a classroom or two, or a locality here is feeling some pension debt burdens in a way they weren’t before. Somewhat. The migration sky does not fall because of marginal income tax rates set at the levels we see in U.S. states.
But today I was pointed to this article by Citizens for Tax Justice by James Russell. It’s about New Jersey, and specifically about millionaire migration: New Jersey’s richest man may move, depriving the state of a significant amount of tax revenues. I think one of the most significant policy takeaways on the issue actually has little to do with migration; it’s really about how heavy fiscal reliance on a narrow tax base of volatile high earners creates unpredictable revenue streams. Relying on the rich to fund your government is, in terms of fiscal stability and long-term planning, about as reliable as counting on oil or gas revenues. There will be booms and busts, and you can’t count on the money lasting forever.
Why Can’t We Just Tell the Truth?
It Is Not Complicated.
The truth about tax-induced migration is not complicated: it happens enough to be statistically identifiable, but the size of the effect varies enormously based on numerous other factors. That’s the truth. So when someone says, “Out-migration is caused by taxes!” that is, at best, a partial truth. What’s more true is that some out-migration is caused by taxes; and it tends to be a small amount.
There are, however, exceptions. Many academic studies have focused just on the very rich, who are (with dubious justification) presumed to be extra-likely to be tax-movers. I won’t bore you here, but the typical results are: rich people on average are actually if anything less responsive to taxes, in terms of migration, than middle-income people. So on that level “Millionaire migration” would seem to be a myth ripe for a slaying.
Buuuuut most studies doing this use revenue agency data granular enough to give us more detail, and then it gets more complicated. It turns out, rich people who derive most income from investments are highly sensitive to tax rates. And here’s the rub: most rich people don’t get most income from investments. Most have specialized skills that earn them high wages and salaries. So if by “Millionaire” you mean “high-flying banker making huge amounts in bonuses,” then that guy is probably not very tax-sensitive, in terms of migration. First of all, he may be able to avoid taxes by restructuring income (remember ability to evade in many cases increases with income), and second of all, even at high taxes, his job is likely to be locationally-tied. The CEO of a government contractor working with the Pentagon probably cannot live in Iowa City. NYC bankers will have a hard time residing in New Orleans. Silicon Valley tech entrepreneurs do not live in St. Louis.
But if by “Millionaire” you mean a person making piles of money off of investments, so sort of a “classic fat cat,” then yeah, that guy is sensitive to taxes. Investment income follows you when you migrate in a way labor income often does not.
Okay, so “Millionaire Migration” isn’t a myth. It’s just that not all Millionaires are alike. Those Millionaires who can relocate their income are highly likely to do so. But many Millionaires are unable to relocate their incomes, because they have specialized, geographically-constrained professions. But the “Millionaire Migration” story is not fundamentally false, it’s just that it misses that many rich people are geographically constrained. Those that can move often do.
Why Can’t We Just Tell the Truth?
It Isn’t Terribly Favorable to Left or Right
Now, in fairness, people who bring up tax-motivated migration in policy debates often don’t explain these facts. And that’s a problem. All too often, migration numbers are trotted out like some kind of trump card, as if all a policymaker should care about is people who don’t live in their district anymore.
That strategic silence on the details by low-tax advocated, however, doesn’t excuse outright falsehoods by their opponents. Yes, rich people are tax-sensitive. Yes, they will seek to reduce tax burdens. Yes, migration is one such option. Now true, it’s not as big as low-tax advocates often claim. And true, the impact is very heterogenous. And true, much of the impact can be offset by re-prioritizing spending. All true!
So say those true things! Citizens for Tax Justice ends their post with a set of fair questions:
“ When one plutocrat makes noises about moving, state officials meet with them and try to persuade them otherwise. Is this the kind of government we want: a rapid response team hyper-focused on a few dozen billionaires instead of the pressing needs of millions of ordinary citizens? Public policies designed to lure the wealthy instead of promoting broad-based economic growth? A friendly handshake for rich hedge fund owners, and a shakedown for the working poor?”
Fair questions all around. But, um, you didn’t need to misrepresent the academic debate about migration to make your point. Regardless of the elasticity of migration with respect to tax costs, it’s pretty sketchy to have government officials so desperately tethered to a few millionaires. And there’s no conflict at all between seeking to optimize migration flows and promoting broad-based economic growth. There just isn’t.
There are lots of ways states could avoid being so dependent on a few huge taxpayers: avoid steeply progressive taxes, adopt a wide variety of taxes, deploy many user fees, adopt policies that support middle-income growth, seek to attract middle-income migrants, build up large rainy-day funds, ensure that consumption taxes are modernized and broad-based, avoid creating carve-outs that shrink the tax base, etc. Different people will favor different options to reducing dependence on a few mobile taxpayers. But the point is, you can argue for or against any of these without appealing to bad migration information.
So why do they do it? Why do both sides of the aisle advance such silly arguments?
On the low-tax side, it’s obvious. Migration is visceral. Migration is dying towns, separated families, empty neighborhoods, shrinking classrooms, and demographic decline. It’s an apparently undeniable testament to “success” or “failure.” So low-tax advocates appeal to migration statistics because it hits their political opponents right in the gut.
So groups like CTJ respond by saying… “Na-na-na-na-na, we can’t hear you!” Which is really immature. Accept the best conclusion from the evidence: taxes have *some* impact on migration, which varies based on local factors and how revenues are spent. Yes, low-tax advocates should stop being so naughty and playing fast and loose with migration information. They really, really should. Lord knows I’ve done my share of criticizing the “TAXES CAUSE THE END OF THE WORLD” argument.
I just really wish somebody would realize there probably is a constituency for the view that “We generally prefer lower taxes, but a moderate amount of taxes are fine if we spend the money responsibly.”
CTJ raised some thought-provoking questions. If that’s what you got from their blog post, then fantastic. Those questions are worth pondering. Unfortunately, the argument leading up to those questions was pretty weak.
Also, just to be clear: I’m an equal-opportunity critic. My motivating ideology is excessive crankiness about migration. Although I am a Republican (*gasp*), I do hope my criticism of CTJ here will be received constructively.
Check out my Podcast about the history of American migration.
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I’m a graduate of the George Washington University’s Elliott School with an MA in International Trade and Investment Policy, and an economist at USDA’s Foreign Agricultural Service. I like to learn about migration, the cotton industry, airplanes, trade policy, space, Africa, and faith. I’m married to a kickass Kentucky woman named Ruth.
My posts are not endorsed by and do not in any way represent the opinions of the United States government or any branch, department, agency, or division of it. My writing represents exclusively my own opinions. I did not receive any financial support or remuneration from any party for this research. More’s the pity.
