Do High Taxes on the Rich Make Any Sense?

Jurisdictions that tax the rich, the standard conservative mantra goes, will always wind up watching their richest flee to jurisdictions that sensibly refuse to “soak the rich.” The over $600 million that Bezos has just saved in taxes on his most recent stock trades, Heritage Foundation “distinguished fellow” Stephen Moore exulted on social media last week, “further confirms the impact of taxes on relocation decisions!”

But right-wing harrumphing about the foolishness of raising taxes on the rich, note analysts who actually bother to study tax data, rests on a relative handful of high-profile anecdotes — like the Bezos windfall — that profoundly distort the actual tax-the-rich story.

So points out sociologist Cristobal Young in his 2017 book, The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich. The view that the “freedom of movement” our richest enjoy will always undercut any move to raise more tax revenue from the rich, Young notes, “has become increasingly prominent in public debates over taxes, especially at the state level.” But that view, he posits, in no way reflects the “actual evidence.”

“Migration overwhelmingly occurs when people are establishing their careers,” the Cornell University-based Young notes. “People almost never move when they are at the advanced career stage.”

The prime reason our awesomely affluent stay put? The wealthiest among us have oodles of “business and social contacts that make them prominent, well-connected insiders where they live.”

The numbers back up Young’s case. His research draws on data “from the tax returns of every million-dollar income earner in every U.S. state over thirteen years,” some 45 million tax records in all. He’s also analyzed Forbes global billionaire data to probe the “propensity of economic elites” to emigrate outside the nations of their birth.

“By the time people reach the peak of their careers — and enter the top tax brackets of their states and countries — many have become embedded elites,” his research shows. “Places are sticky: When you achieve success in a place, it becomes harder to leave.”

Other researchers see similar dynamics at play.

“Many state lawmakers overestimate how sensitive rich people are to a few percentage points’ difference in the state tax rate,” as Carl Davis of the Institute on Taxation and Economic Policy noted last fall.

Differences in state tax rates on high incomes can often amount to much more than a few points. Deep pockets in Florida, for instance, may get a free-pass at tax time, but their counterparts who call New York home face a 10.9 percent state tax rate on income over $25 million. Those in that income bracket who live in New York City face an additional 3.876 percent levy on income above that level, bringing their total top-bracket tax rate to 14.776 percent.

Yet the state of New York, a new Fiscal Policy Institute report points out, has actually been gaining millionaires. And some three-quarters of the rich who have left New York have relocated in Connecticut, New Jersey, and other high-tax jurisdictions.

The most vivid evidence that our richest are not fleeing en masse from higher-tax places? That evidence is coming from the luxury real estate market. In 2023’s fourth quarter, Mansion Global reported last month, New York City saw a 9 percent annual jump in the sales of residential properties in the $20 million-plus price range.

The total value of the quarter’s luxury home sales, notes Coury Napier, the director of research at the Serhant realty giant, topped $530 million, “a significant 37.6 percent jump from last year’s volume.”

Right-wing champions of the richest among us simply ignore stats along this line. They continue to insist that taxes on the rich are running far too high in far too many places. Our actual tax-time reality: Taxes on our rich in no places are running high enough. Existing taxes on our high-income set, even in those jurisdictions that currently tax the rich at our nation’s highest rates, all leave our wealthiest still fabulously wealthy after they pay their taxes.

And that creates real problems for the rest of us. In trendy metro areas, our most affluent bid up the cost of real estate, in the process making housing increasingly unaffordable for moderate- and low-income households. The same Fiscal Policy Institute study that shows that higher tax rates on New York’s top 1 percent are notdriving those affluents away indicates that average families are increasingly finding the city unaffordable and making their exit.

“In 2022, the most recent year data was available,” as the New York Times notes, “the richest New Yorkers left the state at far lower rates than all other income groups.”

We need to fine-tune our tax-the-rich focus. We need to do more than tax high incomes. We need to limit them.