Wayzata and Edina Become Ghost Towns

Two of the nation’s wealthiest suburbs, Wayzata and Edina, have become almost entirely vacated ghost towns in recent days, as Minnesota’s rich and famous have fled their homes to avoid paying a penny more in taxes to make Minnesota’s tax system more fair.

Psst, it’s April 1. Get it.  It’s a joke.  You know,  like all of the tall tales being told at the Minnesota State Capitol about rampant tax flight occuring every time a state raises taxes on rich people.

This well-researched New York Times article lets us in on the joke:

 It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away…

That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy.

Cristobal Young, an assistant professor of sociology at Stanford, studied the effects of recent tax increases in New Jersey and California.

“It’s very clear that, over all, modest changes in top tax rates do not affect millionaire migration,” he told me this week. “Neither tax increases nor tax cuts on the rich have affected their migration rates.”

The notion of tax flight “is almost entirely bogus — it’s a myth,” said Jon Shure, director of state fiscal studies at the Center on Budget and Policy Priorities, a nonprofit research group in Washington. “The anecdotal coverage makes it seem like people are leaving in droves because of high taxes. They’re not. There are a lot of low-tax states, and you don’t see millionaires flocking there.

…Professor Young said his study looked at every millionaire tax record filed in California over the last 20 years, and “neither tax increases nor tax cuts on the rich have affected their migration rates.” He said that the two major tax overhauls before the recent increase didn’t have any effect on migration rates of millionaires. “Among the very richest, people making more than $2 million, out-migration actually declined slightly after the 2005 millionaire tax,” he said.

Why didn’t they move? Professor Young said that for most people, even the very affluent, it’s not that easy, since most successful businesses and high-paying jobs are tied to specific locations…

His research in New Jersey found that, while some people left, any lost revenue was more than made up for by added revenue from people who stayed. He estimated that New Jersey’s 2004 tax increase on incomes over $500,000 raised nearly $1 billion a year, “with little cost in terms of tax flight.”

Mr. Shure added, “I can say flatly that no state has ever raised taxes and lost money.”

Yet the tax flight myth remains surprisingly persistent, fanned by media coverage of celebrities, who are among those most likely to have the means and motive to choose a home based on tax considerations. “You can always find an anecdote.” Mr. Shure said. “Many people want this to be true as a way to discourage tax increases. The rich are always trying to find ways to make the middle class make their arguments for them.”

 

Note:  This post was also featured in Politics in Minnesota’s Best of the Blogs.

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