Some observers, like CNBC’s wealth guru Robert Frank, point to research indicating that Laffer and Moore are dead wrong. He cites a study on millionaire migration by Cristobal Young and Charles Varner of Stanford University who call the Laffer-Moore prediction “pure nonsense.”
Frank notes that while 3.5 million people have moved from high-tax to low-tax states during the last decade, only a small fraction of these people were high earners. Low earners are far more likely to move, either for a job or because “the rent is too damn high.”
He adds that Phoenix Marketing research has found that since 2010, the ranks of millionaires in New York have climbed by 305,000 to 7.6 million, and by 730,000 to 13.4 million in California. Even New Jersey, which was among the states hardest hit and slowest to recover from the housing recession, has added 119,000 millionaires since 2010, bringing its total to 3.3 million. Rising 401(k) balances no doubt have driven much of this wealth creation.
Young and Varner’s study was based partially on the adoption of millionaire taxes by a growing number of states. It concluded that millionaire tax flight was occurring, but “only at the margins of statistical and socioeconomic significance.”
In fact, an analysis of 13 years of data found that Americans earning $1 million or more annually moved at a 2.4 percent rate versus 2.9 percent for the general population.
Their paper cited Nike founder Phil Knight’s prediction that Oregon’s millionaire tax would trigger “a death spiral” in which “thousands of our most successful residents will leave the state.” For reasons only they know, Laffer and Moore didn’t mention Oregon, which has a 9.9 percent state income tax rate, higher than many states they did mention. More importantly, it is located next to Washington, which has no income tax.
Young and Varner examined migration along the Washington-Oregon border, noting that moving between several counties on the state line is more akin to changing neighborhoods “within a city.” Because the change in lifestyle is so minimal, this area provides an excellent laboratory to examine tax flight. So do the Vermont-New Hampshire and North Carolina-Tennessee borders.
The Stanford academics find that “one-time millionaires” show no sensitivity to tax rates, but persistent millionaires, those who regularly earn $1 million or more, are the most responsive. Contradictory though it may sound, persistent millionaires have the lowest overall migration rates. “This supports the hypothesis that elite incomes have a strong place-specific component that ties millionaires to their home states,” Young and Varner conclude. “People who expect continuous flows of million-dollar income over time do not tend to move.”
They also suggest that many high earners are the “late-stage working rich,” with deep personal ties to their communities. Politicians in many high-tax states are acutely aware that their regions generate lots of wealth and they know inertia and proximity prompt wealthy citizens to seriously weigh the hassles of relocation.
It should be noted that Young and Varner completed their study in 2016, when millionaires could still deduct their state and local income taxes. We’re in a new world, so a new chapter still has to be written. From what I've seen anecdotically in the Tri-state region, more people are at least talking about moving than ever before.