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Friday, July 24, 2009

"Who Is Killing America's Millionaires?"

Sneaking in a quick post between new student advising appointments, does recent evidence support that claim that wealthy individuals have been fleeing high tax jurisdictions?:

Who Is Killing America's Millionaires?, by Daniel Gross, Slate: It hasn't been a good recession for the rich. The ... boom was extraordinarily top-heavy..., these are tough times for the wealthy.

As if market forces and malevolent actors weren't enough, the rich are now finding themselves targeted by politicians. Strapped for cash, states, cities, and the federal government are seeking to soak the rich—or at least to make them pay taxes at the same marginal rates as they did in the Reagan years, which many on the right regard as an act equivalent to executing landed gentry. Some politicians have even suggested that we fund health care by slapping a surtax on people with annual incomes of more than $1 million.

This tactic isn't likely to work, in large part because people who make a lot of money are quite effective at swaying public policy. What's more, the wealthy have many defenders who argue that taxing the golden geese will cause them to fly away. In May, the Wall Street Journal op-ed page argued that millionaires fled Maryland after the state legislature boosted the top marginal state income tax rate to 6.25 percent on the top 0.3 percent of filers. ... The Journal uses this ... to warn the federal government and states with progressive tax structures and lots of rich people—New York, New Jersey, California—to heed the lesson. Tax the wealthy too much, and they'll leave.

Such logic makes sense to the Journal's op-ed page staffers, who inhabit an alternative universe in which people wake up in the morning and decide whether to go to work, innovate, or buy a bagel based on marginal tax rates. But if people were motivated to choose residences based solely on high state income taxes, then California and New York wouldn't have any wealthy entrepreneurs, venture capitalists, or investment bankers—and the several states that have no state income tax, which include South Dakota, Alaska, and Wyoming, would be really crowded with rich people. Maybe Maryland's rich folks just had a crappy year in 2008. Robert Frank..., citing data from the Institute on Taxation and Economic Policy, that there's "evidence that [the state's] millionaires didn't disappear because they moved, they disappeared because they are no longer millionaires." ...

Consulting firm CapGemini conducts an annual census of high-net-worth individuals, defined as people with at least $1 million in investable assets, excluding primary residences. "We've been doing this report for 13 years and haven't seen this kind of loss of wealth since we started," said Ileana van der Linde ... at CapGemini... North America saw an 18.5 percent decline in its high-net-worth population, from 3.02 million in 2007 to 2.46 million in 2008. ...

CapGemini's survey contains some interesting geographic wrinkles. High-tax areas like New York and California—places where politicians have been talking about potentially raising taxes on the rich to deal with budget crises—held up better than the national average. ...

Comparative tax havens like Florida, Nevada, and Arizona didn't see an influx of millionaires in 2008. Far from it. In 2008, Las Vegas lost 38 percent of its HNWIs, and Phoenix lost 34 percent. Florida, which has no state income tax and hasn't been talking about one, was a killing field for the rich. The three major metro areas that lost more than 40 percent of millionaires in 2008 were all in no-income-tax Florida—Orlando (42 percent), Miami (42 percent), and Tampa (51 percent). The decline has nothing to do with taxes and everything to do with bursting asset bubbles. ...

Of course, there's evidence that some millionaires have moved out of high-tax states. Bernie Madoff, for example, recently left New York to take up residence in North Carolina.

    Posted by on Friday, July 24, 2009 at 12:20 PM in Economics, Taxes | Permalink  Comments (25)


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