Wealth Tax (H.827/H.828) - Feb 8, 2024

Cristobal Young (Associate Professor of Sociology, Cornell University) gave his presentation to the House Ways and Means Committee called ‘the Myth of Millionaire Flight” on Thursday.  He first reviewed a case study he did from New Jersey, where he started his work on this topic. Back in 2003 New Jersey passed a millionaire tax (NJ has the highest percentage of millionaires in the country). It was the first tax of its kind and at the time New Jersey had marginal tax rates but raised them to nearly 9% in 2004. Neighboring Pennsylvania had a flat tax rate of 3%. There was concern about millionaires moving across state lines. 

Taxes in the area were as follows:

  • 5 New York Boroughs 10.5%
  • New Jersey 8.95%
  • New York 6.85%
  • Connecticut 5.0%
  • Pennsylvania 3.07%

Young found that when the number of millionaires grew it seemed to be through increasing revenue of existing tax-payers not in an increase in wealthy taxpayers. Before the tax increase, there was already an out migration, and it was predicted to increase after the tax increase. But it didn’t happen despite warnings from then Governor Christie. By 2004 the economy was really growing, particularly in New Jersey where the housing market was booming, and wealthy people seemed to be less mobile than first thought. 

People who made their income from investments were more likely to move than those who made their incomes from salary. Another finding was that apparently retired folks did not have higher migration rate than people currently working. He believed this was because Millionaires and retirees looked to other things to determine whether they should move or not like marriage, children, business location, social friends, family, and community. 

Young showed a map of the US that indicated where millionaires tend to live. They live mostly on the east and west coasts. There is no measurable relationship with where they live to the level of taxes they have to pay. He noted that as incomes rose, migration tended to fall. However, extremely high-income individuals tended to migrate more than other millionaires. 

He believed that “deliberative democracy” should decide if it was appropriate to tax millionaires more. But in regard to whether states CAN tax millionaires, the answer is yes you can, but some will move away. What should be discussed is what is the optimal tax rate. As you raise the tax rate you get more revenue but when it goes too high, individuals start hiding revenue, stop working so hard, or move. 

He addressed why the “perception that millionaires will move is so wrong.” It’s factors like friends, family, and community, but also migration is a “young person’s game,” he stated.  It’s not about rich people. It’s about age and education.  Every state wants more rich people but they are not that mobile.  Perhaps the focus should be about attracting young people at the beginning of their career, he suggested.

NOTE: We don’t yet know what impact the ‘remote work revolution’ has done to mobility among high-income earners, or even workers in general. It is worth noting that Young’s work was done in 2004 and a lot has changed in the way people work and live in the past 20 years.

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