Don't Fall for this Anti-Tax Scare!

The Millionaire Migration Myth

Virtually every state in the country has a tax system that heavily favors the rich. Despite this fact, only a handful of states responded to the revenue slump brought on by the Great Recession with any sort of tax increase on this favored group. What gives? With so many states looking for ways to balance their budgets, why isn't there more interest in finally making the rich pay their fair share?

The answer lies partially in one of the most effective, yet most absurd anti-tax scare tactics to be used in recent memory: the so-called "millionaire migration" epidemic. State lawmakers across the country have heard again and again that wealthy taxpayers will pull up stakes and move in response to just about any progressive state tax increase. In most cases, however, even a cursory look at the facts shows that these fears are unjustified. With tax day nearly upon us once again, let's take just a moment to make those facts known.

In New York, it was a business-backed group called the Partnership for New York City that first began spreading misinformation about the state's income tax surcharge on the rich. In a February report, the Partnership claimed that

"New York's high taxes risk pushing jobs, tax revenue, and talent to neighboring states. ...Since the imposition of New York's surcharge in 2009, there has been a 9.4% decrease in the state's taxpayers who are worth $1 million or more, decreasing from 381,786 in 2007 to 345,892 in 2009."
That sounds pretty scary, but the same data used by the Partnership shows that every state in the country saw its millionaire population decline between 2007 and 2009, and that a whopping forty-three states experienced declines exceeding New York's 9.4 percent drop. Apologies for stating the obvious, but these declines were a predictable result of the recent recession.

Making matters worse, the original press release accompanying this data made very clear that the U.S. as a whole saw its millionaire population decline by nearly 14 percent between 2007 and 2009. It's therefore a little strange, to say the least, that the Partnership would interpret New York's 9.4 percent drop as providing any evidence whatsoever that could be useful in its crusade against taxing high-income earners.

Oregonians also had to listen to their share of uninformed anti-tax nonsense during the course of the last few months -- this time coming from pundits living clear on the other side of the country. In December of last year the Wall Street Journal's editorial board suggested that a recent voter-approved income tax increase on upper-income families caused up to 10,000 Oregonians to pack their bags and head to Texas. Their "evidence" in support of this claim? 10,000 fewer taxpayers were affected by the tax increase than the state originally expected.

Of course, there's at least one other perfectly reasonable explanation for why fewer Oregonians would be affected: the recession lowered their incomes enough to bring them beneath the starting point for the new tax brackets (only taxpayers earning more than $125,000 - or $250,000 in the case of married couples -- were affected by the tax increase). Unfortunately for the Journal, the data strongly suggest that this is the case.

After just a quick glance at the data, my group -- the Institute on Taxation and Economic Policy (ITEP) -- found that while the state's revenue estimators overestimated the size of Oregon's "rich" population by roughly 34,000, it also underestimated its middle- and low-income population by more than 60,000. Simply put, some 26,000 more Oregonians filed tax returns than the state originally expected. They just earned less income than usual due to the weak economic climate.

What makes this story especially troubling is that, as in New York, there was very clear evidence available refuting the Journal's claims -- had anyone there taken the time to look for it. Almost a full week before the Journal's piece was published, the Oregon House Revenue Committee held a hearing in conjunction with the release of the new data at issue. As is usually the case, that hearing gave the state's revenue estimators an opportunity to offer some very useful context, such as the fact that the 10,000 return discrepancy was due to taxpayers being "driven down the income distribution because [of lower than expected capital gains income], and they [moved] from the affected category to the unaffected categories."

No discussion of millionaire migration would be complete without a look back at the debacle in Maryland. Thanks in no small part to a pair of misleading editorials published by the Wall Street Journal, Maryland's legislature failed to approve legislation early last year that would have extended its temporary tax bracket on incomes over $1 million. Since then, much of the hubbub surrounding the Maryland "millionaires' tax" has died down, but the effect that the Journal's misinformation campaign had on shaping the conventional wisdom on "millionaire migration" makes the issue worth revisiting.

As in New York and Oregon, the question in Maryland revolved around whether high-income taxpayers were migrating or simply becoming less rich. When the Maryland Comptroller released data showing a roughly 30% drop in millionaire filers between 2007 and 2008 (the year Maryland's "millionaires' tax" first took effect), the Journal enthusiastically seized on this figure as proof that the "redistributionists" and "class warriors" had failed in their scheme to "soak the rich."

To its credit, the Journal did exercise a modicum of caution in its first two editorials by reminding its readers that much of this decline was due to the recession, though it continued to insist that the "millionaires' tax" just had to have something to do with this drop as well. ITEP responded to the Journal in multiple reports and an unpublished letter to the editor explaining that more detailed data, provided by the Comptroller's office upon request, indeed confirmed that the vast majority of "migrating" millionaires had simply moved to a lower tax bracket.

Fast forward to last December when the Journal revived the Maryland migration myth in the context of Oregon. This time, the Journal threw caution to the wind and stated flatly that "one-third of [Maryland's] millionaire households vanished from the tax rolls after [tax] rates went up." Of course, this flew in the face of its published claim from nine months earlier that: "one-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008." But that was back before the Journal forgot about the recession. (For the record: even the "one-in-eight" figure was an exaggeration.)

In all three of these states -- New York, Oregon, and Maryland -- the anti-tax crowd ignored a lot of fairly obvious evidence running counter to their claims. Unfortunately, that's the way it's been whenever the "millionaire migration" issue has made its way into statehouse debates. Any shred of "evidence," no matter how meaningless or out of context, has been seized upon by those seeking to construct the anti-tax, vote-with-your-feet narrative they desperately wish was true.

With so much bad information floating around, it's not surprising that most states have been reluctant to eliminate the massive preferences for the wealthy built into their tax systems. But what lawmakers need to know -- and what the Wall Street Journal and others have been refusing to tell them -- is that once you scratch the surface of the millionaire migration issue, it becomes abundantly clear that the anti-tax side's claims have no substance. It's long past time to stop letting the millionaire migration myth get in the way of progressive tax reform.