Millionaire flight from tax reform may be exaggerated


“Tax-Hike Fears Fuel Talk of Exodus From Manhattan and Greenwich,” read a recent headline on Bloomberg, which quoted Bruce McGuire of the Connecticut Hedge Fund Association saying: “It would almost be irresponsible if [the wealthy] weren’t thinking of moving.”

New York Governor Andrew Cuomo predicted the changes would be “devastating” to New York.

Moody’s Analytics estimates housing prices in Manhattan could fall 10 percent in the coming years under the new provision.

Goldman Sachs estimates that New York City could lose up to 4 percent of its “top earners” if the bill becomes law. “The increased tax differential between high- and low-tax areas may increase movement from the former to the latter,” Goldman said in its note.

High-profile billionaires who move to Florida — including David Tepper and Thomas Peterffy — will probably continue to grab headlines to make the phenomena of wealth flight seem even greater.

Yet the most thorough research on wealth migration suggests that the numbers of rich people moving for lower taxes is relatively small. A study done by Cristobal Young and Charles Varner of Stanford University, and Ithai Lurie and Richard Prisinzano of the U.S. Department of Treasury analyzed 13 years of income data for all Americans earnings $1 million or more — totaling about 3.7 million tax filers over the time period.

Broadly speaking, the study found that only 2.4 percent of million-dollar earners move every year. That rate is lower than the 2.9 percent move rate for the broader population. And by looking at the tax differentials between states, it found that only a small slice of the millionaires who move are driven by taxes. The study found that slightly more than 2 percent of millionaire migrants “appear to have income-tax motivations” when they pick up stakes. In other words, only 0.04 percent of millionaire earners move for tax reasons.

Why isn’t the number higher? Rather than being a transient rich, today’s wealthy are more like an “embedded elite,” with deep economic and social ties to their communities, according to the study.

“In general, high-income earners are more likely to be married, to be in a dual-career household, to have school-age children, to own rather than rent their home, and to own a business — all factors that discourage migration,” the report said.

Most importantly, the big jobs that pay those high salaries are at companies that aren’t easily moved. Goldman Sachs isn’t likely to pick up and move to Miami because its investment bankers want to lower their tax bill.

Business owners are also anchored to their locations, the study says.

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