Fox's Varney Claims Wealthy Moved From California, Maryland To Avoid Higher Taxes

Varney: “You Raise Taxes On The Rich, And They Will Either Move Or Avoid That Higher Tax Rate.” On Fox News, 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: That makes no difference. That makes no difference whatsoever. Forget this fiscal cliff deal. 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.

KILMEADE: Are you disturbed at all, because I know you're a numbers guy, that is seems as though Republicans from Senator Corker to Senator Coburn to Congressman Cole seem to be saying, “All right, just raise the rate. Give the president his trophy so we can get to some real cuts.” Would that bother you?

VARNEY: Yes, it would bother me because this is a spending problem, not a tax problem. And if you just give in and pay the higher tax rates or vote for higher tax rates, it doesn't mean to say you're going to do anything for the deficit. It's a bad policy. But looked at strictly economically -- forget the politics here. Forget fiscal cliff, forget negotiations. You just look economically, raise taxes, you don't get all the money you think you were going to bring in.

KILMEADE: Real quick. I know Kevin McCarthy the congressman, one of the young guns, was on Meet the Press over the weekend, he said, “Good news. Revenues are up 10 percent because see seem to be turning around economically. Here's the bad news. Spending is up 16 percent.” Why -- and he's trying to explain to a very reluctant David Gregory -- why should we consider raising taxes when clearly, the revenue is up but the spending is up higher?

VARNEY: The president wants to raise taxes on people making  more than $250,000. He thinks that'll bring in $82 billion in one year. The experience of California, France, Britain, Maryland is that not you will bring in $82 billion, you'll bring in less. [Fox News, Fox & Friends, 12/10/12]

Study: Previous California Tax Hikes Did Not Cause Millionaires To Leave The State

Report: “Highest-Income Californians Were Less Likely To Leave The State After The Millionaire Tax Was Passed.” Research conducted by sociologists Cristobal Young at Stanford University and Charles Varner at Princeton University for the Stanford Center on Poverty and Inequality found that “millionaire migration” due to tax increases is simply 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) found that “millionaire migration” is simply a myth. 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] 

In Maryland, Economic Factors Like The Recession -- Not Taxes -- Have Led To Fewer Millionaires

Report: Millionaires' Tax “Has Not Led To An Exodus Of Wealthy Marylanders.” A January 2010 study by the Institute on Taxation and Economic Policy of 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 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 Post, 3/13/10]

Other Studies Have Similarly Found That Raising Taxes On Wealthy Doesn't Lead To Out-Migration

CBPP: “Raising Taxes Won't Spark A Large Wave Of Out-Migration, And Cutting Taxes Won't Spark A Large Wave Of In-Migration.” According to a report by the Center on Budget and Policy Priorities (CBPP) that outlines research on locational decisions, the effect of taxes on migration is negligible. From the report:

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]

WSJ: “Millionaire Tax Didn't Chase the Rich From New Jersey, Study Says.” A previous study by the Stanford Center on Poverty and Inequality's Young and Varner focusing on the “millionaire tax” in New Jersey, which increased the income tax rate on top earners by 2.6 percent, 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 Journal, 4/20/11]

Media Matters intern Brian Rabitz contributed to this report.