History suggests that a new radio ad from Texas Governor Rick Perry trying to lure business people out of California — which recently raised taxes on incomes over $1 million, as the New York Times points out today — probably won’t turn out to be one of the best investments Texas ever made.
As our major report from 2011 explains, tax rates aren’t a big motivation for rich people to move from one state to another. Far more important are factors like job opportunities, family considerations, housing costs, and climate.
No state that raised income taxes on the wealthy ever lost money as a result. A handful of wealthy people might leave, but the money raised from the vast majority who stay — money that helps pay for education, transportation, and other building blocks of a strong economy — more than makes up for any loss.
Our report cited a careful study by Stanford’s Cristobal Young and Princeton’s Charles Varner showing that New Jersey’s 2004 tax increase on incomes over $500,000 raised several billion dollars over the next three years with almost no cost in terms of tax flight. Similarly, more recent research from Young and Varner found that raising California’s top rates had little impact on the migration of high earners.
In short, while wealthy Californians might look for ways to whittle down their tax bill through loopholes, they are highly unlikely to hit the road in search of lower taxes. As Stanford’s Young told the Times, “I suspect the accountants are a lot busier this year, but I don’t think the moving companies are getting a boost.”