Actually, Income Tax Hikes Don’t Drive Rich People Out Of State

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Contrary to popular belief, high income taxes do not compel large swaths of wealthy people to move to lower-tax states, according to a new study from the centre on Budget and Policy Priorities (via the Wall Street Journal).In reality, while a few wealthy families leave high-tax states for that reason each year, “states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue,” the study concluded.

Here are the basic conclusions of the study:

  • Interstate migration is rare. On average, just 1.7 per cent of U.S. residents moved from one state to another per year between 2001 and 2010.
  • Migration is driven by cheaper housing, not lower taxes. In Florida, for example, people moved out-of-state when housing stock got more expensive, even though taxes remained low.
  • Tax increases cause little or no interstate migration. A recent study of New Jersey residents found that “at most…70 tax filers earning more than $500,000 might have left New Jersey between 2004 and 2007” because of a 2004 tax increase that affected only those filers.
  • Low taxes can deter potential migrants from moving in. Amenities that are often financed with tax dollars, such as cultural facilities, recreational opportunities and good public services often entice migrants, the study found.

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