The Truth About Fox's Tax Flight Myth

››› ››› ELLIE SANDMEYER & MICHELLE LEUNG

Fox News has repeatedly made the false claim that liberal states lose billions of dollars due to tax flight, but tax flight is a well-debunked myth, and the most recent study Fox cited only showed that income tax and state-to-state migration were correlated factors.

Fox's Latest Tax Flight Myth Confuses Correlation And Causation

Fox: Liberal States Show "Big Losses" Because "People Vote With Their Feet." On the February 28 edition of Fox News' Fox & Friends, co-host Brian Kilmeade and guest Travis discussed data from Brown's website howmoneyworks.com, which they said shows that income taxes influence state-to-state migration. Kilmeade and Brown falsely claimed that "liberal states have lost about $140 billion" due to tax flight:

BROWN: Well, thanks to the Internal Revenue Service numbers, we now have the results of how Americans have moved, voting with their wallet, over the last 18 years. We lined that up to recent polls about what Americans have said as conservative or liberal across the 50 states. 

KILEMADE: And as you did the math, you noticed a trend that most conservative states, the red states seemed to have gotten a lot of the money.

[...]

BROWN: By contrast, the places that are liberal show big losses.  

KILMEADE: And we should point out too, that's an important number. The tax rate in that state has people judging whether their quality of life will be better or worse

BROWN: Exactly right, because the price of work, the penalties we put on work at the state level is very different because we have nine states like, Texas, for example, that puts no personal income tax, and they show big, big gains.

[...]

KILMEADE: It's just so fascinating, and your book backs it up and so does your map, that people vote with their feet. They can earn their money, they can also decide where they're going to keep most of their money because if you work hard, you don't want to give it away. [Fox News, Fox & Friends2/28/14, emphasis added]

Fox Has Pushed The "Tax Flight" Claim For Years

Fox's Stuart Varney: "You Raise Taxes On The Rich, And They Will Either Move Or Avoid That Higher Tax Rate." On the December 10, 2012 edition of Fox News' Fox & Friends, Fox Business host Stuart Varney claimed that raising marginal tax rates on the wealthy leads to lower revenue because millionaires will leave to avoid taxes -- specifically pointing to California and Maryland examples. Fox & Friends co-host Brian Kilmeade agreed, commenting that after taxes were raised in Maryland "they went to Pennsylvania and now in California they're going to Texas":

VARNEY: The moral is, you raise tax rates and down goes tax revenue. Look at what happened in Britain. They raised the top tax rate to 50 percent, and two-thirds of the millionaires disappeared in the next tax year. Same things are happening in France, people are leaving where the top tax rate is 75 percent. Same thing happened in Maryland a few years ago. New millionaire's tax, the millionaires disappeared. You've got exactly the same thing in California.

KILMEADE: They went to Pennsylvania and now in California they're going to Texas. So people are --

VARNEY: You avoid a high -- what they consider a confiscatory tax rate. You want to take more money off them, but when you try to do it, you don't get more money off them. [Fox News, Fox & Friends12/10/12]

Fox's Stuart Varney: States With High Out-Migration "All Have Very High Tax Rates." On Fox & Friends, Varney claimed that states that have experienced high rates of out-migration "all have very high tax rates on top income earners." He went on to suggest that if President Obama's plan to raise taxes on the wealthy is enacted, the U.S. will experience a lack of revenue, a slowing economy, and high unemployment. [Fox News, Fox & Friends11/30/12]

Tax Flight Is A Myth: Taxes Are Not Primary Motivation For State-To-State Migration 

New York Times: "It's Not The Case" That Tax Increases Drive Wealth Out Of States. As The New York Times pointed out, the argument that taxes cause migration is inaccurate because "the large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate":

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 New York Times2/15/13]

CBPP: Studies Show The "Migration Myth" Is Not Credible. Jon Shure, the deputy director of the State Fiscal Project at the Center on Budget and Policy Priorities (CBPP), highlighted what he called "the migration myth," noting that "the main reasons people move from one state to another are job prospects, housing costs, family considerations, and climate" and that it is not "credible to say that taxes are a primary motivation" for state-to-state migration:

Wait, you might ask.  What about differences in the job market?  Oil prices?  Housing costs?  Shouldn't we take these and other potential factors into account?

Indeed we should.

As we discussed in a major report last year, the vast majority of people live their whole lives in the state where they were born, and the main reasons people move from one state to another are job prospects, housing costs, family considerations, and climate. So, for instance, to draw any meaningful conclusions about our two newest states, you'd want to factor in that housing in Anchorage is a bargain compared to Honolulu.  Studies by economists and demographers that take into account the wide range of other factors show consistently that taxes have little if any impact on migration. [Center on Budget and Policy Priorities, Off The Charts, 4/16/12]

CBPP: "Tax Flight Is a Myth: Higher State Taxes Bring More Revenue, Not More Migration." A report by CBPP titled "Tax Flight Is a Myth: Higher State Taxes Bring More Revenue, Not More Migration" outlines the recent advances in research on locational decisions, concluding that the effect of taxes on migration is negligible. From the report:

Recent research shows income tax increases cause little or no interstate migration. Perhaps the most carefully designed study to date on this issue concerned the potential migration impact of New Jersey's 2004 tax increase on filers with incomes exceeding $500,000. It found that while the net out-migration rate of this income group accelerated after the tax increase went into effect, so did the net out-migration rate of filers with incomes between $200,000 and $500,000, and by virtually the same amount. At most, the authors estimated, 70 tax filers earning more than $500,000 might have left New Jersey between 2004 and 2007 because of the tax increase, costing the state an estimated $16.4 million in tax revenue. The revenue gain from the tax increase over those years was an estimated $3.77 billion, meaning that out-migration -- if there was any at all -- reduced the estimated revenue gain from the tax increase by a mere 0.4 percent.

[...]

Conclusion

Critics of tax increases (and advocates of tax cuts) have sounded their alarm so loudly and often that their unproven assertion, "if you tax them, they will flee," has gained credibility among some policymakers and journalists. But, thanks in part to wider access to actual tax return data, independent analysts have shown that the alarmists are wrong. More careful, thorough studies have assembled compelling evidence that the effects of tax increases on migration are, at most, small. In other words: raising taxes won't spark a large wave of out-migration, and cutting taxes won't spark a large wave of in-migration. [Center on Budget and Policy Priorities, 8/4/11]

ITEP: "Tax Flight" Argument Relies On Cherry-Picked Data. A study conducted by The Institute on Taxation and Economic Policy found that states with higher income taxes displayed "considerably more economic growth per capita over the last decade." The report also points out that studies arguing that tax policy is "a leading force behind migration trends," rely on cherry-picked data that lead to misleading conclusions [emphasis added]:

Using the most recent 10 year period and the same group of eighteen no-tax and "high rate" states chosen by Laffer, Figure 1 shows  that the nine states with "high rate" income taxes have on average seen considerably more economic growth per capita over the last decade than the nine states that fail to levy a broad-based personal income tax.

How was Laffer able to reach such dramatically different conclusions? In short, his argument relies on cherry-picking a number of measures of economic growth that are closely related to population trends (total income, total economic output, and total jobs) and simply asserting that tax policy is a leading force behind the migration trends that fuel this growth. Since a larger population brings with it more demand, it's natural that states experiencing the fastest population growth also experience more growth in the total number of jobs and total amount of economic output.

But simply counting the number of people, or the  total amount of income, inside of a state's borders reveals very little about how typical families are faring in that state's economy. The  economist Peter Fisher has observed that population growth "is not an end in itself." And the aggregate economic growth associated  with changes in population is hardly a surefire sign of a strong economy. [Institute On Taxation And Economic Policy, 2/2013]

State-Level Data Refutes Claim That Tax Hikes Causes Millionaires To Leave

Report: "Highest-Income Californians Were Less Likely To Leave The State After The Millionaire Tax Was Passed." Research conducted by sociologists Stanford University's Cristobal Young and Princeton University's Charles Varner for the Stanford Center on Poverty and Inequality found that "millionaire migration" due to tax increases is a myth. The study focused on California migration patterns of high-income earners based on the Mental Health Services Tax in 2005 (which raised the tax rate on Californians with income above $1 million by one percent). From the study:

Using difference-in-differences models, which compare migration trends of the group experiencing the tax increase to a group of high-income earners not facing a tax change, neither in-migration or out-migration show a tax flight effect from the introduction of the 2005 Mental Health Services Tax. In fact, out-migration has a "wrong-signed" estimate: out-migration declined among millionaires after the tax was passed (both in absolute terms and compared to the control group). In other words, the highest-income Californians were less likely to leave the state after the millionaire tax was passed.

Graphs show the total number of millionaires was unaffected by tax increases and tax cuts:

[Stanford Center on Poverty and Inequality, 2012]

Report: Millionaires' Tax "Has Not Led To An Exodus Of Wealthy Marylanders." A January 2010 study by the Institute on Taxation and Economic Policy on Maryland's creation of a new tax bracket for those with net taxable income greater than $1 million found that "[t]he millionaires' tax has not led to an exodus of wealthy Marylanders." From the report:

In recent months, much has been made of the alleged impact that the millionaires' tax has had on the number of affluent individuals and families that make their homes in Maryland. It is true that the number of tax returns filed in Maryland with net taxable income (NTI) of $1 million or more declined noticeably between 2007 and 2008; as the table below shows, there was a drop of 2,157 such returns over that span.

Still, that decline has far more to do with the national recession -- and its impact on household incomes -- that it does with changes in tax policy. As the table illustrates, the change in the number of returns with NTI of $1 million or more is result of changes in both the "outflow" of millionaires and the "inflow" of millionaires. In 2008, there was an "outflow" of 3,837 millionaire tax returns. That is, there were 3,837 Maryland taxpayers that had reported NTI of $1 million or more in 2007 that no longer did so in 2008.  In turn, this "outflow" can be divided into one of two categories: (1) taxpayers who still filed in Maryland but reported incomes below $1 million or (2) taxpayers who either filed only as a part year resident or did not file a return at all (because they moved out of state, died, or simply failed to file a return at all).  The former group is the one that likely reflects changes in the broader economy. Importantly, it is far larger than the latter group, consisting of nearly 3,300 returns to the roughly 540 in the latter, thus indicating that the decline in incomes was the driving force behind the apparent disappearance of Maryland's millionaires. [Institute on Taxation and Economic Policy, 1/8/10]

Wash. Post: Recession-Led Decrease In Income, Not Higher Tax Rates, Led To Fewer Millionaires In Maryland. The Washington Post reported that while some criticized Maryland's "millionaire tax," which imposed a top rate of 6.25 percent on people making $1 million or more, other analysts found that the recession lowered the number of millionaires that could be taxed by the surcharge. From the article:

On his weekly radio show Saturday, [then-Republican candidate for Maryland governor Robert] Ehrlich pointed to an online Wall Street Journal opinion piece that seeks to make the case that Maryland's "soak-the-rich theology" has prompted many of the state's top earners to relocate -- taking their talents and tax dollars with them.

[...]

Most analysts have suggested the largest reason for the drop off in income reported by millionaires is that they made less money during the recession, particularly on capital gains -- which the Journal piece acknowledges is a contributing factor. [The Washington Post3/13/10]

WSJ: "Millionaire Tax Didn't Chase the Rich From New Jersey, Study Says." A previous study by the Stanford Center on Poverty and Inequality focused on the "millionaire tax" in New Jersey, which increased the income tax rate on top earners by 2.6 percent, and found that the "millionaire taxes have little effect on the movements of millionaires as a whole." From the Wall Street Journal:

Anti-tax advocates contend that higher taxes on the wealthy lead to millionaire flight. They say this has been seen in Maryland, Rhode Island, New Jersey and New York. The rich are mobile, they say. They can take their money, taxes and jobs wherever they are treated best.

But a new study focusing on New Jersey provides some of the most detailed evidence yet that so-called millionaire taxes have little effect on the movements of millionaires as a whole.

The study, by sociologists Cristobal Young at Stanford and  Charles Varner at Princeton, studied the migration patterns of New Jersey's millionaires before and after 2004, when the state imposed a "millionaire's tax" that raised rates on those earning $500,000 or more to 8.97% from 6.37%.

The study found that the overall population of millionaires increased during the tax period. Some millionaires moved out, of course. But they were more than offset by the creation of new millionaires.

Graph illustrating the effects of the "millionaire tax" on change in number of millionaire tax filers:

[The Wall Street Journal4/20/11]

Posted In
Economy, Taxes
Network/Outlet
Fox News Channel
Person
Stuart Varney
Show/Publication
Fox News Network
We've changed our commenting system to Disqus.
Instructions for signing up and claiming your comment history are located here.
Updated rules for commenting are here.