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InsiderOnline Blog: August 2011

Yes, High Taxes Do Encourage Wealth Creators to Leave

Antony Davies and John Pulito summarize their findings in a new Mercatus Center study, Tax Rates and Migration:

Controlling for property-tax rates, sales-tax rates, high-income tax brackets, unemployment, and state/county-specific and time-specific effects, we find that higher state income-tax rates cause a net out-migration not only of higher-income residents, but of residents in general. We also find that changes in the income levels to which the tax rates apply similarly affect out-migration. For county-level data, we find that high-income households react to a lowering of income levels to which higher tax rates apply in the same way that they react to increases in the tax rates themselves. This behavior suggests that the tendency to lower the threshold for “high income” or “millionaire” households to capture households that are not millionaires may entice those households to follow the behavior of millionaire households and flee to more tax-friendly environs. Finally, for state-level data, we find that the effect of property taxes on migration is significantly stronger than the effect of high-income tax rates on migration. For example, a one percentage point increase in the property-tax differential between two states has almost three times the effect on migration as does a one percentage point increase in the difference in high-income tax rates. All of these data suggest a recipe for population depletion. States lose households to more tax-friendly states by (1) lowering the “high-income” threshold so as to capture more households, (2) increasing high-income tax rates, and (3) increasing property-tax rates.

Posted on 08/12/11 02:46 PM by Alex Adrianson

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