New York Daily News

The truth about mil­lion­aires & taxes

- BY CRISTOBAL YOUNG Young is a so­ci­ol­ogy pro­fes­sor at Cor­nell Univer­sity. Tax Credit · Taxes · Business · California · New Jersey · United States of America · Florida · New York City · Upper East Side · Zoom Video Communications

Gov. Cuomo re­cently ar­gued, “if you take peo­ple who are highly mo­bile and you tax them, then they will just move.” State leg­is­la­tors work­ing to raise rev­enue by hik­ing taxes on the wealth­i­est New York­ers say his con­cerns are un­founded. Where does the truth lie?

I have spent more than 10 years study­ing the con­se­quences of elite tax­a­tion in Cal­i­for­nia, New Jersey and across the coun­try. Us­ing big data from the tax re­turns of all top-earn­ers, I have found there are many mis­per­cep­tions about tax flight.

It’s un­der­stand­able that many are mis­taken around mil­lion­aire tax flight. For one, the rich are well known to avoid taxes. There is a large “in­come de­fense in­dus­try” of lawyers that help them min­i­mize their tax bur­den. More­over, top earn­ers of­ten ap­pear hy­per-mo­bile — a jet-set­ting elite, freed from the lim­its of places and bor­ders. At first glance, the rich seem both mo­ti­vated and mo­bile: highly sen­si­tive to tax­a­tion and read­ily ca­pa­ble of exit.

But it’s not as sim­ple as that. To bet­ter un­der­stand the mi­gra­tion of the rich, I an­a­lyzed tax re­turn data from all million-dol­lar in­come-earn­ers in Amer­ica. The dataset in­cludes 3.7 million top-earn­ing in­di­vid­u­als, who filed more than 45 million tax re­turns across a dozen years. This showed where mil­lion­aires live and where they move to.

It turns out that place still mat­ters for the rich — much more so than we might think.

The rich may travel a lot, but they rarely change the state where they live and file their taxes. Only 2.4% of mil­lion­aires move across state lines in a given year. Low-in­come earn­ers have al­most twice that rate of mi­gra­tion (4.5%). In gen­eral, mi­gra­tion de­clines with in­come: The more peo­ple make, the more res­i­den­tial sta­bil­ity they tend to have.

And for good rea­sons. The poor are search­ing for eco­nomic op­por­tu­nity, but the rich have found it. With suc­cess comes many spoils that tie peo­ple to place. Most mil­lion­aires are the “work­ing rich,” and have es­tab­lished ca­reers in fi­nance, con­sult­ing, medicine or law. Al­most all of them are mar­ried, and most have chil­dren at home. They are home­own­ers, and a quar­ter of them own a busi­ness too.

All of th­ese are so­cio-eco­nomic bonds that make mov­ing harder, more com­pli­cated to negotiate, and less worth the trou­ble of start­ing over some­where else.

Tax mi­gra­tion is not like other forms of tax avoid­ance. The main thing rich peo­ple do to avoid taxes is hire ac­coun­tants, lawyers and wealth man­agers, who engage in pa­per games with the tax au­thor­i­ties. But mi­gra­tion is not some­thing your ac­coun­tant can do on pa­per for you — there is no avoid­ing the life dis­rup­tion.

One rea­son the tax flight myth per­sists is con­fir­ma­tion bias. There is one-way in­ter­est in anec­dotes about elite mi­gra­tion. When New Jersey bil­lion­aire David Tep­per moved to Florida, there was a media frenzy over his tax flight story. When he moved back home a few years later, it was hardly re­ported.

The re­al­ity is that most mil­lion­aire mi­gra­tion, when it hap­pens, has noth­ing to do with taxes. Some 85% of th­ese moves are tax-neu­tral. Most of the anec­dotes we hear are qui­etly counter-bal­anced by rich peo­ple mov­ing to higher-tax places.

All told, when mil­lion­aires change their state, my re­search found only 15% of th­ese moves come with a net tax ad­van­tage. Tax-mo­ti­vated movers are a small frac­tion of a small frac­tion: Of the 2.4% that move, only one in eight were chas­ing lower taxes — that’s 0.3% of mil­lion­aires.

So tax flight is not a fig­ment of our imag­i­na­tion, but it is greatly ex­ag­ger­ated. This frac­tion of moves is too small to mat­ter, es­pe­cially as New York con­tin­ues to grow new mil­lion­aires faster than any leave.

Dur­ing COVID-19, anec­dotes such as shrink­ing Up­per East Side trash col­lec­tion led to grow­ing con­cern that the wealthy have per­ma­nently ab­sconded. How­ever, while mil­lion­aires may tem­po­rar­ily camp out at their sum­mer homes, this is far dif­fer­ent than per­ma­nently mov­ing. (There’s a rea­son the city’s lux­ury real es­tate mar­ket keeps boom­ing.)

Ad­di­tion­ally, some fear that with tech­nol­ogy like Zoom, cities are un­nec­es­sary. When the tele­phone was in­vented, con­cern sim­i­larly spread that peo­ple would no longer want to live near one an­other. And yet cities re­main.

The New York econ­omy is fac­ing a K-shaped re­cov­ery. This means high-pay­ing jobs and the stock mar­ket have re­bounded from COVID, while low-wage ser­vice-sec­tor work­ers are stuck in a deep re­ces­sion. The hard­ship is pro­foundly un­even.

But mod­est mil­lion­aire taxes of­fer a way for­ward: to pro­tect ed­u­ca­tion, ser­vices and pub­lic in­vest­ments that re­plen­ish qual­ity of life in the state, while re-bal­anc­ing the eco­nomic bur­den that COVID has wrought. The re­sult will not be the mythic de­par­ture of wealthy New York­ers — but rather, re­cov­ery for work­ing peo­ple as well.

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