One of the classic claims of the wealthy, and their friends on both the political right and in the tax abuse industry, is that if the rich are taxed then they up and leave a place. Except now we know that is not true. A new study by Cristobal Young shows that. The publicity for his new book says:
In this age of globalization, many countries and U.S. states are worried about the tax flight of the rich. As income inequality grows and U.S. states consider raising taxes on their wealthiest residents, there is a palpable concern that these high rollers will board their private jets and fly away, taking their wealth with them. Many assume that the importance of location to a person's success is at an all-time low. Cristobal Young, however, makes the surprising argument that location is very important to the world's richest people. Frequently, he says, place has a great deal to do with how they make their millions.
In The Myth of Millionaire Tax Flight, Young examines a trove of data on millionaires and billionaires–confidential tax returns, Forbes lists, and census records–and distills down surprising insights. While economic elites have the resources and capacity to flee high-tax places, their actual migration is surprisingly limited. For the rich, ongoing economic potential is tied to the place where they become successful–often where they are powerful insiders–and that success ultimately diminishes both the incentive and desire to migrate.
This important book debunks a powerful idea that has driven fiscal policy for years, and in doing so it clears the way for a new era. Millionaire taxes, Young argues, could give states the funds to pay for infrastructure, education, and other social programs to attract a group of people who are much more mobile–the younger generation.
And today he has written in the Guardian, saying:
To better understand elite migration across state lines, I analysed tax return data from every million-dollar income-earner in the United States. The dataset includes 3.7 million top-earning individuals, who collectively filed more than 45 million tax returns over more than a dozen years — showing where millionaires live and where they move to.
And it turns out that place still matters for the rich — much more so than we might think.
Only about 2.4% of US-based millionaires change their state of residence in a given year. Interstate migration is actually more common among the US middle class, and almost twice as common among its poorest residents, who have an annual interstate migration rate of 4.5%.
This is, of course, what we could expect. It's easy to move when you have very little, or when you're young. It gets harder the older you get. And incidentally, as he finds, when people do move then it's to the sun, and not for low tax. Again, there's nothing new in that.
But what does that mean? It means we can tax wealth because the rich stay put.
And we can have progressive taxation.
The arguments over: the facts are what matters. Now let's get on with it.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
It is precisely because it’s the poor who move that immigration is deemed to be a problem.
The wealthy don’t move they just move their money.
I think it quite interesting that for the most part Americans won’t even cross state lines in their own monoglot country for tax advantages. Probably because they fear reassessment by a new and perhaps more assiduous tax inspector may prove less favourable than the cushy terms they are already benefiting from. As the wealthy are wont to say paying taxes is optional.
But I think the writer is closer to the truth in pointing to the importance of social, business and cultural networks. Not easy things to put a price on.
If inequality ( presumably of outcome because that’s what’s being measured here, and within countries ) is the most pressing issue of our time, then surely it is better to devise policies that do get the HNW individuals to get off their backsides and go live elsewhere.
As suggestions go that hits the crass bin fair and square
Yes – let’s get it done.
We need I think to approach this from ‘fairness’ perspective rather than one about ‘equality’.
Us Brits – with our class system (many say it is dead but I have never seen the evidence) do not get ‘equality’. So that means we accept a certain amount of inequality. But how much is too much? Life should be fairer, with life chances dealt out more fairly as well as a more fair distribution of wealth.
‘Fair’ is the way folks. I think that people get it.
Why are there so many wealthy non-locals living in Switzerland? In Guernsey, Jersey and the IOM? There are 2 million non-Swiss nationals living in Switzerland. Do you think they have gone there for the chocolate? In Europe the only country with a higher percentage of non-nationals is Luxembourg.
Those are real people. Really living there. In the real world.
You seem to inhabit some fantasy island of your own creation in which if you say something is so then it is so.
But they are a tiny proportion of the world’s HNWIs
Sure there are some
I think they’re defined as the sad gits
And that’s what the evidence shows
And we can afford a few of them
“Sad Gits”.
I can just hear the envy oozing from your words.
You seem to lack the imagination to actually look at your own arguments. Those who move are the super-wealthy. The ones with the most wealth. You are forever going on about wealth being held by fewer and fewer people yet can’t work out it is those who are going to leave. With ease. They can hop on their own plane and be in Switzerland or Monte Carlo and have someone drive the Ferrari over later. It won’t take many of them and your dream of taxing wealth collapses.
As they lookelooked out the plane window on the runway, they’d see you impotently waving your fist at them. I wonder what they’d think? “Sad git” springs to mind.
Oh dear: the old ‘politics of envy’ argument. There’s just one problem with it: it may be true for you but it’s not for most, me included.
Why? Because we do think those who put money ahead of family ties, place, culture and belonging to a community does make a person a ‘sad git’. To make money your priority when you already have enough of it seems like extraordinarily poorly informed choice that evidences a considerable lack if concern for others. Hence the term.
And so why the evidence shows this is suffered by a tiny number, for whom sympathy is due.
The rest stay.
And I’m not surprised. Once you have enough money is a long way from the most important thing in life. Where that point is might be open to discussion, but it’s a lot less than those we’re discussing have.
Labelling them “sad gits” might give you a glow of satisfaction, but (i) I’m sure they can live with the label, assuming they even know who you are, or that you ever said it; and (ii) using the term doesn’t really alter the fact that tax is lost.
Some tax is lost
But we’ll never collect 100% of tax
And what the evidence suggests is thee gains will outweigh the losses
And we could do a passport tax system if we had to, as I have just been reminded
The US has a state system on tax, as you know.
https://www.cnbc.com/2016/04/06/billionaire-to-save-hundreds-of-millions-from-florida-move.html
The hedge fund billionaire, founder of Appaloosa Management, officially changed his tax residency and corporate headquarters from New Jersey to Florida. People close to Tepper say he made the move to be closer to his mother and sister, who live in Florida.
Yet it could also save him hundreds of millions of dollars in taxes that would have gone to New Jersey.
So some ‘sad gits’ do move for what they perceive a better life.
I didn’t say some did not move
I said the numbers were too small to worry about
Of the two million non Swiss nationals living in Switzerland how many are millionaires? My daughter lives in Switzerland and she is most definitely not a millionaire. I very much doubt that many of the East European nationals now living in Switzerland are millionaires either.
No Phil,
They go to Switzerland because they have an obsession with cuckoo clocks.
Cuckoo! Cuckoo! Cuckoo!
Isn’t there an argument here that the first step people take is to attempt to avoid the tax because that is by far the easier approach? After you close down all the loopholes and ways to minimise a tax bill do you enter into unknown territory and nobody will really know what is going to happen?
I suspect the USA isn’t a great place to look for evidence because Federal Income Tax rates apply globally and tend to be a lot higher than State Income Tax rates. The first objective of the rich would probably be to avoid Federal Taxes. As State Income Taxes are normally based on income for Federal Income Tax purposes (sometimes with an adjustment) once you avoid the Federal Income Taxes the State Income Taxes will typically be avoided by default.
To put it another way, if you took steps to reduce your income to a nominal level for UK income tax purposes would it matter to you if Scotland increased their income tax rates by 5%? Would you move from Scotland to England to avoid an additional 5% in tax that you aren’t really paying anyway?
Most tax changes aimed at the wealthy tend to be tweaks. Tweaks bring small increases in tax or changes in behaviour to minimise them. Almost everybody tends to cope with slow gradual creeping change. Nobody really knows what would happen if a huge change was made to the tax system overnight because even big tax changes tend to have some sort of grandfathering provisions in them somewhere, or failing that there is a way to avoid them somehow.
Yes, us the answer
First, because if you’re bent in avoiding tax all tax is bad
Second because I think you’ll find by default the survey does address this
Third the sample size is big enough to find trends despite this
Fourth, because state tax is not marginal in many locations, and most especially those where the wealthiest tend to be found in the US (Florida apart)
I believe that we agreed on the necessity of a passport based tax, and capital controls, to prohibit the flight of wealth ? Are we saying this is no longer a necessity now that we have discovered that changes to domestic taxation are really not a driver of emigration ?
I would have it as a back stop
But right now it’s not in my top 10 priority list
Because I suspect people won’t be going far
Excepting EU nationals getting out
Maybe me included, but that won’t be for tax but for work
I’m intrigued as to why you would move for work. I assume you wouldn’t commute to do your lectures etc? Isn’t this anecdotal evidence of Brexit triggering some sort of brain drain?
I may commute if that is the only way to keep my research going
Anth says:
November 22 2017 at 12:08 pm
I’m intrigued as to why you would move for work. I assume you wouldn’t commute to do your lectures etc? Isn’t this anecdotal evidence of Brexit triggering some sort of brain drain?
Mr Murphy is suggesting, I think, that he is prepared to join that most despised group of people, in modern times, the ‘economic migrants’.
How low can a human being descend, one wonders – to relocate in order to pursue the trivial activity of making a living engaging in one’s chosen profession.?
Funny old world we live in.
If the only way I can get research funding post Brexit is at an EU university I will move is what I imply
I hope that won’t be necessary, but if it was I would be open to doing so
It might be quite fun anyway
And I have an Irish passport
I think the study is flawed.
Seriously wealthy can and do choose where to live an where to pay taxes, consider the likes of Sir Philip Green or Lord Ashcroft. These are people who measure their wealth in hundreds of millions or billions.
Far, far below them is a large layer of individuals who have net wealth of 1m to say 20m. I can say from personal experience many of these choose to relocate to the Isle of Man and similar. To them they live close enough to family and friends in UK to keep in touch. Also they get regular shopping trips to London etc. Some are certainly sad gits but many enjoy their lifestyle.
The tax loss to the UK these represent could be significant.
Crikey: what dragged you out of the woodwork?
Philip Green is resident in the UK
His wife is not
Ashcroft’s situation is unclear but it seems likely he was at least resident here for a long time
And no one with net wealth of £1m cabin afford to relocate: let’s not be silly
And how many are you talking about? It’s hundreds. Maybe a few thousand. So what? Thatr’s not enough to change policy
Why do you support a US-style passport system of taxation for individuals? If the rich don’t move surely it would have zero impact?
I’ll be honest, it’s not high on my list of priorities
I support it but have not mentioned it for ages
This is what Brexit really boils down to, and the real reason why rabid neoliberal ideologogues like Farage are so desperate for it. Less taxation and less regulation.
Owen Paterson (Tory MP and Vote Leave proponent) let the mask slip today by calling for the UK to become a deregulated tax haven like Singapore:
“If we are to thrive, our post-Brexit model should exactly be Singapore, a tiny country devoid of natural resources but with a booming economy and an average life expectancy of 85. In 1980, Britons were 20 per cent richer than Singaporeans on average; today they are twice as rich as us.
My proposition is simple. There is not much point leaving the EU and its bureaucratic jungle of regulations, only to run our economy on precisely the same lines as before. Regardless of whether it smooths the path to a deal with Barnier, what is the point of Brexit (at least economically) if we shackle ourselves to high-tax, high-spend policies endemic in the EU?”
I’m not sure whether they should be credited for being able to pull the wool over so many peoples’ eyes, or whether the 52% should be lambasted for their utter naivety/ignorance. Perhaps both.
We could do as he wants
But the world wouyld line up against us
The rules against such abuse are now extensive
And the Singapore comparison is absurd: it is inflated by corporate profits never seen my most people in Singapore
I attended the LSE lecture last night, which was very interesting. http://www.lse.ac.uk/Events/2017/11/20171120v1830vSZT/the-myth-of-millionaire-tax-flight There may be a podcast at some point.
The hardest evidence is based on US data: it turns out that on the whole that people with high incomes living in New York and California do not move to Nevada or Florida just to avoid state income taxes. Perhaps because they are paying federal taxes wherever they live, and differences in state tax rates (up to 10%) is not enough to counter the losses from moving, particularly their embedded social and business networks.
Further, US citizens tend to remain in the US. Perhaps because the US taxes its citizens, whether or not they are resident in the US. You see that in the statistics of billionaires, who largely (95% of the thousand or so in 2010) live in the country where they were born, or grew up, or became successful. Perhaps a third of them are American, and expatriation can be very expensive. Only handful move away from the place where they made their wealth. Very few wealthy people left the UK after Labour won the 1997 election, or after the 50% tax rate was introduced.
There was a suggestion that the peak of the Laffer curve may be at around 65 to 70%, based on likely behavioral responses (some will move, but not many; more will reduce their income, perhaps changing it into capital).
All this is about tax on income, of course, and for some reason earned income is still more heavily taxed than investment income or capital gains. And that is without directly taxing wealth.
Doesn’t reconcile with 112,000 non-doms having left the UK since March 2017!
There aren’t that many non-dons as far as I am aware
Your stats are wrong
https://www.theguardian.com/money/2007/jul/08/tax.business1
No, I’m not wrong. There were 112,000 registered non-doms in 2007 and a lot more arrived in the following 10 years.
The figure is coincidental but I am reliably informed that 112,000 non-doms have left since March 2017.
It is utter nonsense to claim that tax does not drive the wealthy away.
But that means they have all gone
And that is not true
It is difficult to know quite how many non-doms there might be in the UK. The number will includes people with Irish ancestry for example who inherited a domicile of origin from Ireland and who can argue that they have not yet adopted a domicile of choice in the UK; and immigrants from the West Indies or Bangladesh or Australia and their descendants; and French and German bankers; and Polish plumbers; and Hungarian builders; and Chinese cockle pickers; so on.
The 2011 census indicated that 7.5 million people in the UK were born overseas, but some of them might have inherited a UK domicile of origin from their parents. And most of them won’t have foreign income or gains that they do not remit to the UK and/or won’t be claiming the benefit of the remittance basis of taxation.
HMRC knows that about 120,000 people claim non-domiciled status each year. Of those, about 85,000 are UK resident. And of those, about 55,000 of them claim the remittance basis, and just 5,000 pay the remittance basis charge. https://www.gov.uk/government/statistics/statistics-on-non-domiciled-taxpayers-in-the-uk
“Millionaire taxes, Young argues, could give states the funds to pay for infrastructure, education, and other social programs ”
Richard, we both know that. neither the UK nor the US needs the taxes of the wealthy to fund infrastructure, education or other social programs.
So why quote this extract, when it isn’t true?
Because additional spending does require more tax recovery at some point. We don’t need tax to spend, but we do to keep the economy in balance where balance is full employment with low inflation
And because tax does need to deliver social justice
Indeed.
But that’s not what the quote says!
Given that most of the information regarding where tax take comes from is so vague and woolly and that tax authorities really haven’t a clue what they are doing, arguing the toss about what a few wealthy sad, or happy, gits is largely a waste of internet capacity.
It’s also very boring, but I appreciate I am under no compulsion to read it.
I was arguing with somebody the other day who maintains that ‘Trickle Down’ isn’t a ‘theory’. Because he maintains it doesn’t appear in any economics textbooks. Comments or references on that assertion anybody? It seems to me that an idea which has shaped economic policies for four decades is a theory by default.
A study by a professor of sociology. Also: why would wealthy people need to move when they can just avoid their taxes by hiding their income? If wealthier members of society can no longer hide their income, then physically moving – hypothetically – is still on the cards. All this study proves is that in a world where wealthier members of society can hide their income – they tend not to move. In a world where wealthier members of society can’t hide their income – they very may well do.
But let’s be clear: the claim was they do move
And you’re agreeing they don’t
And the fact is that we can now trace their wealth