Tax Flight: Reality versus Myth

The forces fighting against the fair tax advocated by Gov. Pritzker are saying that the tax prompt will prompt wealthy Illinoisans to flee other states. However, statistical evidence shows that this claim is not true. The stats say that the well-to-do residents are actually embedded in the communities where they amassed their wealth. The low-income residents are the actual ones that regress under the state’s flat income tax.

It is repeated again and again that “Pritzker’s proposal for a graduated income tax — in which tax rates are raised only for the top 3 percent of wage earners making more than $250,000″ will incline the wealthy to move to other states but two studies contradict these kinds of claims with one study finding that “elites are embedded in the regions where they achieve success, and they have limited interest in moving to procure tax advantages.”

The first study is not new as it was published in 2016. The American Sociological Association published a study on “Millionaire Migration and the Taxation of the Elite: Evidence From Administrative Data” in its review periodical in 2016. The study is based upon tax data from returns filed by million-dollar earners across the nation on 13 years’ time period. The study had incorporated 45 million returns as they tracked the states from which millionaires file their taxes.

A growing number of U.S. states have adopted ‘millionaire taxes’ on top income earners. This adoption raises the concerns of tax flight meaning elites migrating to other states which drains state revenue and undermining redistributive social policies.

The dilemma arises that are the elites searching for lower-tax places to live or are they are embedded in the state in which they have being successful? The study finds ‘“that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.”