The central argument of this book unfolds in three chapters. In Chapter 2 I present comprehensive evidence on millionaire migration within the United States. I draw on 45 million tax records from every million-dollar income earner in every U. I analyze how often millionaires migrate and how often they move to lower-tax states. The chapter also draws on the Forbes list of richest Americans, to explore whether the super-rich are drawn to low-tax states.
I supplement this with U. Census data to reveal striking patterns in migration by age and education over the life course. Chapter 3 then zooms out to the global landscape. At the global level, millionaire tax flight could mean the movement of top earners and their families, or it could mean simply the movement of money through shell companies and foreign bank accounts. This chapter explores both possibilities.
Moreover, the international tax game is not just about the migration of people. I explore new research on the enormous sums of money held in offshore tax havens, an issue highlighted in leaks from the Panama Papers. I examine the extent to which elites can use offshore accounts to evade taxes and whether a careful structuring of shell companies can be a substitute for actually moving to an offshore tax haven.
As it turns out, offshoring personal financial wealth accomplishes less tax evasion than one might think. Chapter 4 takes a step back to reflect more deeply on millionaire migration and why it is not more common in the modern world.
This chapter is about understanding why place is important and why mobility—especially for those at the top—is less appealing than we often think. I emphasize that human capital—knowledge, skills, and abilities—tends to be place-specific. For example, top-level financial analysts have place-specific human capital. Their skills will be most valued in a handful of major cities that specialize in finance, which limits where they can live. Similarly, social capital depends on living in the place where people have their best social contacts and connections.
And cultural capital means taking advantage of opportunities where people have their strongest cultural fit. The place-specific nature of these forms of capital grows over time, especially as people advance in their careers.
By the time people reach the peak of their careers—and enter the top tax brackets of their states and countries—many have become embedded elites. Places are sticky: When you achieve success in a place, it becomes harder to leave. I conclude the fourth chapter on a broad note about globalization and the nation-state. It is tempting to think that without legal borders and citizenship rules, populations would readily spill across borders.
But, at least among people born in rich countries, national borders are much less important than we think. Countries are held together mostly by the gravity of home-field advantage and place-specific capital. If the countries of the Western world dissolved their shared borders, it is unlikely that many people would move.
What borders mostly do, we will see, is keep people out—specifically people born in the global South: These are the developing countries in Asia, Africa, and Latin America, and people from these regions would have a much higher standard of living if they could work in a rich Western country.
For people born in rich countries, no such opportunity differentials motivate systematic migration, and plenty of place-specific capital deters it. Among rich countries themselves, few citizens have much reason to live elsewhere—even if the legal borders were completely open. In the final chapter, I focus on the policy implications emerging from this research on millionaire migration and the taxation of the rich.
What should be the policy priorities of places that seek to address inequality and build a foundation for shared prosperity without setting off the migration of top income earners? The threat of millionaire migration does limit the ability of states to set higher tax rates for the rich but by less than one might think. I suggest a modest agenda for addressing individual tax evasion through offshore shell companies. And finally, I conclude by suggesting that it may be better for places to compete for young, highly educated individuals who are just beginning their careers, rather than trying to attract the late-career individuals who currently have the highest incomes.
Noted international tax expert Reuven Avi-Yonah suggested this language back in Martin ; for further analysis of elite influence on public policy, see Gilens , Gilens and Page , and Bartels, Page, and Seawright These figures are from Piketty and Saez , Table 2, p.
The figures are for to the latest year they report on ; if updated to , there would be little real change. The figures represent average, rather than marginal, tax rates and include all taxes applied by the federal government, including the individual income tax, payroll tax, corporate tax, and the estate tax. An initial look at these data is in Young, Varner, and Massey The comprehensive analysis of millionaire migration in New Jersey is reported in Young and Varner The first report of research from this collaboration was published in Young et al.
I drew on and extended these analyses in this book. The Myth of Millionaire Tax Flight. Chapter 1. Varieties of Taxation Over the last several decades, U. The Patriotic Millionaires say they reject the idea that only a very small group of highly talented elites is responsible for creating the wealth. Data and Methods How does one study the geographic mobility patterns of the highest income earners?
Notes 1. Knight In this Commonwealth of haves and have-nots, throngs of millionaires inconspicuously live among us. Wealth also abounds from our world-class financial services firms.
So why, with all the abundance, is there heavy resistance to a simple concept that those who earn a lot more should pay a little bit more proportionally in state taxes? And many states have graduated rates that rise as income increases. Extra revenue could pay for improved public transportation, reduced state college tuition and fees, and extra support for struggling school systems, to name a few.
They say governments are not competent and waste money, that it goes into the pockets of the lazy, and so on. The paper suggested reframing taxpayer perceptions of what constitutes a gain or a loss. If you can convince people that they do not want to lose fantastic public transport just to boost their income by a few percentage points, you may have more luck convincing them to pay taxes.
This is a sentiment I have heard occasionally in Scandinavian countries. It is also effectively the point made by the Bostonian poet and physician Oliver Wendell Holmes, who said taxes are the price we pay for a civilised society. But few rich people are outspoken advocates of paying tax.
The author JK Rowling is perhaps the best known. Buffett is a noted philanthropist, but many argue that the problem with philanthropy is that it is not a good substitute for tax and entrenches the power of an already powerful group.
Perhaps a more interesting view on tax is to move away from money and look at happiness. Some research suggests that paying tax can make us feel good, in the same way that donating to charity does. High-tax European countries such as Denmark do very well in happiness rankings, and this may be linked to lower inequality, making for better societies.
But what about lower-tax countries? Would the wealthy revolt if taxes rose? Maybe not. A study by researchers at the University of Virginia and the University of Toronto asked this question. Currently, the top statutory tax rate on investment income is just To reduce this inequity, we should raise tax rates on capital gains and dividends so they match the tax rates on salaries and wages.
The rich are able to get much bigger tax breaks for the same tax deductions taken by the middle class. For example, a wealthy family living in a McMansion gets a much bigger tax deduction on the interest on their large mortgage than a middle-class family gets on the interest on their small mortgage on a two-bedroom house. Strengthen the estate tax. Some of the ultra-rich are able to take advantage of loopholes so they pay almost nothing in inheritance taxes.
Only three estates for every 1, deaths would be affected. Another way to ensure that large inheritances are taxed is to close the income tax loophole that lets wealthy people avoid capital gains taxes by holding their assets until they die. Their heirs then escape paying taxes on these gains.
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