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Are High Taxes Driving the Wealthy Out of States and Out of the Country?
by Ken Marrero  
February 12, 2012 

FrontPageMag.Com is reporting on what it’s dubbed “The 1% Exodus;” wealthy Americans fleeing increased taxes. Missing millionaires are also reported in Maryland, New York, New Jersey and other states raising taxes on the wealthy. 

Explanations have fallen along ideological and partisan lines. The one thing agreed on, however, is that there are fewer wealthy folks in states which tax them higher. It’s said the missing millionaires are:

Transients – those who enjoyed a windfall year and then dropped back into lower income brackets;

Victims – those who made serious money and now see their income reduced by a bad economy;

Travelers – those voting with their feet due to increased taxes. 

Each explanation has merit and likely that each produce missing millionaires. But to what extent does each do so?. The difficulty in answering that is found less in what studies look at and more in what they don’t. Art Laffer’s famed Curve posits a point at which taxes are so high people will actively seek to avoid them. Laffer doesn’t say where that point is; just that it’s there. Additionally, Laffer didn’t say the Curve applies only to the wealthy. It applies applies to everyone. 

Thus, to me, the biggest omission isn’t from data on reactions by the wealthy; it’s how the rest of the us react. I realize lower income earners aren’t subject to these taxes and can’t help explain what the wealthy are doing. Yet looking everyone’s behavior ought to help explain what they are not doing. 

States with the highest taxes on the wealthy and with missing millionaires are also missing other people. New York is the biggest net population loser. Why? If taxes aren’t playing a part, why are all demographics leaving the state? Illinois ranks second. Again, why? It seems to be Chicago’s fault. Why are the IL counties the largest population increase those that surround Chicago? Could it be because Chicago recently made its tax rate the highest in the nation? 

What about small businesses with their less wealthy owners? California has not yet raised taxes on the wealthy but it’s on the this Fall’s ballot. The Golden State is already reeling from high taxes, business regulation and rising state operating costs. Even without increased taxes on the wealthy, businesses and their owners are fleeing California in increasing and troubling numbers. Why? 

This is not an academic exercise. States robbing the rich to give to the poor are asking for trouble if they assume no connection between taxes and people leaving. For one thing, it’s not just that the wealthy are leaving high tax areas; it’s that the poor are attracted to government subsistence. States may find themselves losing the goose and its golden egg while gaining more mouths to feed, clothe and house. 

The other shoe waiting to drop is claims that even if it’s true the wealthy are leaving it’s only a handful each year and so it’s no big deal. But It is if there is a net loss. Revenue numbers are no different at the state or national level. The wealthy comprise a fraction of population and yet pay the lion’s share of income. In New York, the wealthy pay almost 40% of the state’s revenue while making up far less than 1% of its population. If there’s only a 2% net loss per year, the population changes little but revenues changes drastically. 

The wealthy are easy targets for class warfare. They are easy to demonize. The one thing not easy about them is replacing them if they leave. States are fools to keep arguing increased income is way out of the mess they created as if money grows on trees and new taxpayers ready to pick up the tab. Maybe it really does work that way. But wanting it to work that way and depending on it to work that way are two very different things. 

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