[Vision2020] The Myth of the Rich Who Flee From Taxes

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

------------------------------
February 15, 2013
The Myth of the Rich Who Flee From Taxes By JAMES B.
STEWART<http://topics.nytimes.com/top/reference/timestopics/people/s/james_b_stewart/index.html>

Last month, Vladimir V. Putin hugged his newly minted fellow Russian
citizen, the actor Gerard Depardieu, posing for cameras at the Black Sea
port of Sochi. “I adore your country,” Mr. Depardieu gushed — especially
its 13 percent flat tax on personal income.

Sochi may not be St. Tropez, but it does have winter temperatures in the
60s and even palm trees. Mr. Putin’s deputy prime minister confidently
predicted a “mass migration of wealthy Europeans to Russia.”

Here in the United States, the three-time Masters champion Phil Mickelson
recently walked off the 18th hole at Humana Challenge and said he might
move from California because the state increased its top income tax rate to
13.3 percent from 10.3 percent.

“Hey Phil,” Gov. Rick Perry of Texas wrote in a Twitter
message<https://twitter.com/GovernorPerry/status/293444316632846337>,
“Texas is home to liberty and low taxes ... we would love to have you as
well!!” Tiger Woods later said that he had left California for Florida for
just that reason years ago. Mr. Mickelson can “vote with his
Gulfstream,” a Wall
Street Journal editorial
noted<http://online.wsj.com/article/SB10001424127887323940004578258011541487142.html>,
and warned California to “expect a continued migration.”

It’s an article of faith among low-tax advocates that income tax increases
aimed at the rich simply drive them away. As Stuart Varney put it on Fox
News: “Look at what happened in Britain. They raised the top tax rate to 50
percent, and two-thirds of the millionaires disappeared in the next tax
year. Same things are happening in France. People are leaving where the top
tax rate is 75 percent. Same thing happened in Maryland a few years ago.
New millionaire’s tax, the millionaires disappeared. You’ve got exactly the
same thing in California.”

That, at least, is what low-tax advocates want us to think, and on its
face, it seems to make sense. But it’s not the case. It turns out that a
large majority of people move for far more compelling reasons, like jobs,
the cost of housing, family ties or a warmer climate. At least three recent
academic studies have demonstrated that the number of people who move for
tax reasons is negligible, even among the wealthy.

Cristobal Young, an assistant professor of sociology at Stanford, studied
the effects of recent tax increases in New Jersey and California.

“It’s very clear that, over all, modest changes in top tax rates do not
affect millionaire migration,” he told me this week. “Neither tax increases
nor tax cuts on the rich have affected their migration rates.”

The notion of tax flight “is almost entirely bogus — it’s a myth,” said Jon
Shure, director of state fiscal studies at the Center on Budget and Policy
Priorities, a nonprofit research group in Washington. “The anecdotal
coverage makes it seem like people are leaving in droves because of high
taxes. They’re not. There are a lot of low-tax states, and you don’t see
millionaires flocking there.”

Despite the allure of low taxes, Mr. Depardieu hasn’t been seen in Russia
since picking up his passport and seems to be hedging his bets by
maintaining a residence in Belgium. Meanwhile, Russian billionaires are
snapping up trophy properties in high-tax London, New York and Beverly
Hills, Calif.

“I don’t hear about many billionaires moving to Moscow,” said Robert
Tannenwald, a lecturer in economic policy at Brandeis University and former
Federal Reserve economist. Along with Nicholas Johnson, he and Mr. Shure
are co-authors of “Tax Flight Is a
Myth<http://www.cbpp.org/cms/?fa=view&id=3556>,”
a 2011 research paper.

Of course, some people do move for tax reasons, especially wealthy
retirees, athletes and other celebrities without strong ties to high-tax
locations, like jobs and families. In renouncing his French citizenship,
Mr. Depardieu follows other French celebrities, the chef Alain Ducasse, the
singer Johnny Hallyday and Yannick Noah, a former tennis star. Several
Paris hedge fund managers have decamped to London and the fashion mogul
Bernard Arnault applied for Belgian citizenship, though not, he has said,
for tax reasons.

Stars like Mr. Depardieu and Mr. Mickelson certainly have incentives to
move. Mr. Depardieu complained that he paid 85 percent of his income in
taxes in France last year and has paid 145 million euros over 45 years.
France has a top rate of 41 percent as well as a wealth tax, and the
Socialist president, François Hollande, is trying to impose a temporary
surcharge of 75 percent on incomes over 1 million euros. Mr. Mickelson
earned more than $60 million last year, Sports Illustrated estimates, which
means the three-percentage-point California tax increase could add up to an
additional $1.8 million in tax.

Gregory Mankiw, an economist at Harvard, said that tax rates did affect
migration, at least of certain groups. “Rich people can pretty much live
anywhere,” he said. “If you’re a retired person trying to decide between
Palm Beach and Santa Barbara, the tax difference between Florida and
California is huge. If you’re an academic choosing between Stanford and
Harvard, it might be a factor.” (Massachusetts has a flat income tax rate
of 5.3 percent.)

For this affluent and mobile group, it doesn’t much matter where their
official residence is. Mr. Mickelson and Mr. Woods travel the tournament
circuit throughout the year. Very wealthy people often have multiple homes
in different locations, even different countries, and can shuttle among
them to avoid local taxes. One reason so many luxury apartments in
Manhattan sit empty is that their foreign owners can’t spend more than half
the year in them without incurring United States income tax liability.

A star like Mr. Depardieu “can go to Paris whenever he wants,” Mr. Shure
noted. Professor Tannenwald agreed. “People who are very rich, who are
retired or who aren’t tied to a particular location, do change their
residency at a high rate based on tax differentials.”

But there aren’t many people like that. “Tax-induced flight is rare,”
Professor Tannenwald said. “The rate of interstate migration is low to
begin with. To the extent that people leave a state, or shun a potential
destination, they do so primarily for other reasons, such as to find more
affordable housing, better job prospects or a more attractive climate.”

Low-tax advocates like Mr. Varney point to Maryland as a prime example of
tax flight. Maryland created a millionaire tax bracket in 2008 with a top
rate of 6.25 percent. But a year later, the state reported that the number
of millionaires filing returns had dropped by a third, and that total tax
revenue from the group fell despite the rate increase. After a chorus of
media criticism — “Millionaires flee Maryland
taxes<http://washingtonexaminer.com/millionaires-flee-maryland-taxes/article/99092>”
(The Washington Examiner) and “Millionaires Go
Missing<http://online.wsj.com/article/SB124329282377252471.html>”
(The Wall Street Journal) — the state legislature let the increase expire
in 2011.

But a study by the Institute on Taxation and Economic
Policy<http://bit.ly/eVsHx0>,
a nonprofit research group in Washington, found that nearly all the decline
in millionaires was the result of a drop in incomes largely attributable to
the stock market plunge and recession, and not to migration — “down and not
out,” as the study put it.

In 2009, just 364 people in the millionaire bracket moved from Maryland or
died (the data didn’t distinguish between the two) — about the same
percentage who disappeared in 2007, before any tax increase. And in 2009,
more than 1,500 taxpayers entered the millionaire rolls, either because
they earned more or moved to Maryland that year. That data “directly
contravenes the notion that changes in tax policy were discouraging the
affluent from working hard and earning substantial sums of money, or
driving them out of the state altogether,” the study concluded.

Professor Young said his study looked at every millionaire tax record filed
in California over the last 20 years, and “neither tax increases nor tax
cuts on the rich have affected their migration rates.” He said that the two
major tax overhauls before the recent increase didn’t have any effect on
migration rates of millionaires. “Among the very richest, people making
more than $2 million, out-migration actually declined slightly after the
2005 millionaire tax,” he said.

Why didn’t they move? Professor Young said that for most people, even the
very affluent, it’s not that easy, since most successful businesses and
high-paying jobs are tied to specific locations. In addition,
“entrepreneurship and earning power are clustered in highly competitive
regions like Silicon Valley, Los Angeles and New York City,” he said.
“People making over a million are typically close to their peak income
years, and are enjoying the fruits of long-term career investments. This is
hard to walk away from.”

His research in New Jersey found that, while some people left, any lost
revenue was more than made up for by added revenue from people who stayed.
He estimated that New Jersey’s 2004 tax increase on incomes over $500,000
raised nearly $1 billion a year, “with little cost in terms of tax flight.”

Mr. Shure added, “I can say flatly that no state has ever raised taxes and
lost money.”

Yet the tax flight myth remains surprisingly persistent, fanned by media
coverage of celebrities, who are among those most likely to have the means
and motive to choose a home based on tax considerations. “You can always
find an anecdote.” Mr. Shure said. “Many people want this to be true as a
way to discourage tax increases. The rich are always trying to find ways to
make the middle class make their arguments for them.”

This article has been revised to reflect the following correction:

*Correction: February 15, 2013*

An earlier version of this column misstated Mr. Depardieu’s citizenship. He
has applied for residency in Belgium; he is not a citizen of that nation.
The earlier version also misidentified the golf tournament at which the
golfer Phil Mickelson said he might move from California to escape its
taxes. It was the Humana Challenge, not Pebble Beach.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://mailman.fsr.com/pipermail/vision2020/attachments/20130216/6b5963fa/attachment.html>