Do Millionaires Vote With Their Feet?

Andrew Rosenthal points us to one of the most eye-poppingly specious arguments I’ve ever seen against high-earner taxes, from Scott Hodge at the Tax Foundation (my bold).

612,520 people renounced their New York State citizenship and moved to Florida between 2000 and 2010. They took with them nearly $20 billion in adjusted gross income, after adjusting for inflation. During the same period, 208,784 Pennsylvania residents renounced their state citizenship and moved to Florida, taking $8 billion in income with them. 

Many of these New York and Pennsylvania residents no doubt moved to Florida for the warm weather, but many more may have moved their because the state does not have an individual income tax, an estate tax, nor an inheritance tax.

“May have” is certainly a strong piece of evidence. It’s hard to argue with.

But let’s try.

Back when we were trying to pass a high-earner tax in Washington State a couple of years ago (with Bill Gates Senior as the lead spokesman and cheerleader; it failed dismally), I got curious to know whether millionaires do actually congregate in low-tax states.

It turns out they don’t:

The correlation is -0.00003. Notice in particular the giant gaping hole in the upper left corner, where the millionaires should all be congregating. (Florida’s over there by the 5% mark.)

Of the 12 states with the highest concentration of millionaires, 10 (83%) have above- or at-trend (in this case, median) income tax rates.

This Hodge piece got me curious again, so I plotted the raw number of millionaires (since this doesn’t account for population, it’s just for grins):

The correlation here is somewhat negative (lower tax rates, more millionaires), but still effectively nil: -.035. Florida and Texas do stand out, but so do New York and California. Who you gonna believe?

Here it is with the X-axis scale changed, so it’s easier to see the bulk of the states:

(I just noticed a screwup here: one of the MAs should be MD for Maryland.)

So the evidence suggests that Hodge’s fond notion is nothing more than that: something he wants to believe, which is utterly contradicted by the facts on the ground.

Rosenthal quotes Michael Bloomberg, who some might consider an authoritative source on this subject:

I can only tell you, among my friends, I’ve never heard one person say I’m going to move out of the city because of the taxes. Not one. Not in all the years I’ve lived here. You know, they can complain, ‘Ugh, I got my tax bill, it’s heavy.’ But my friends all want to live here.

The Scott Hodges of this world don’t seem to have read their Adam Smith, in particular the passage containing the “invisible hand” coinage of which they are so fond:

every individual endeavours to employ his capital as near home as he can, and consequently as much as he can in the support of domestic industry… By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

How many of them do you think actually know what Smith was talking about in that passage?

Many thanks for the effective tax rate data to Eric de Place of Sightline Daily, who did the yeoman’s work of compiling it based on…get this…Tax Foundation data (XLS).

Millionaires percentage: Phoenix Affluent Marketing (PDF).

Cross-posted at Asymptosis.

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