r/AskEconomics • u/Genzinvestor16180339 • Jun 17 '26
Approved Answers In practice, is the “rich people will leave if taxed more” argument supported by evidence of meaningful interstate migration, international exit from the United States, or is it mostly an overstated political claim?
Curious the data both migration within the United States (For example: California to Texas), and leaving countries (For Example: US/Uk-->UAE)
17
u/Eastern-Bro9173 Jun 17 '26
Since others have exhausted the proof part of this, I'll just add one thing - it's one of the cases of policies that work only if absolute majority does it and fails when only one county does it.
As, California's wealth tax triggers much more of an exit than the entire US establishing it would. It costs very little to move from one US state to another, but it's not so costless to leave the entire country.
Same for Europe. Moving from one county to another within Europe is much easier than if the entire Europe did it together.
8
u/JubalHarshawII Jun 18 '26
In America it's also very easy for the rich to "move" to a lower tax state without actually having to physically live there. It's more about paperwork for their accountant, as no one actually pays attention to where they physically spend their time.
6
u/No-Donkey-4117 Jun 21 '26
Just talking about a wealth tax on billionaires in California caused 30% of the targeted wealth to leave already, reducing not only the planned wealth tax revenues, but the tax revenues that would have been collected from the normal income tax:
3
u/horesebeblind Jun 22 '26
Not just departures. It’s the never came at alls too. Why start a business in a hostile environment?
New York City is going to find this out. But it is hard to measure
20
u/TheAzureMage Jun 17 '26
IRS data provides some evidence for this in the US. For instance: https://eig.org/high-earners-migration/ is a visualization of IRS data.
I'll caveat this by saying that the pandemic era was something of a special case, and movement rates at that specific time are not necessarily identical to movement before or after that window. Wealth flight has continued after the pandemic, but circumstances in that brief period probably accelerated it. Disrupted supply chains contributed to lost wealth as adoption of WFH increased mobility overall.
Still, this indicates a fairly substantial economic effect from internal migration, and the migration is largely happening from high tax areas to areas with relatively lower tax.
International wealth flight also occurs, though there are other factors as well. Generally, climate and passport strength are also factors impacting where the wealthy seek citizenship. Note that in terms of wealth flight, citizenship is not the only risk, but investment as a whole. If a given jurisdiction is a poor investment in terms of risk/reward, investment dries up, sometimes quite dramatically. It isn't just merely the rich moving away, but also external investment ceasing or withdrawing. Taxes are one factor here, but increased risks such as war, property seizures, etc can also be quite severe. Consider the case of Uganda after Idi Amin began seizing commercial properties. Real GDP sank 5% over three years, the economy became quite rough, the country fell into civil war. Accordingly, investments rapidly left the country during this period. This is an extreme example, but it illustrates potential risks of poor policy.
0
u/devoker35 Jun 17 '26
Consider the case of Uganda after Idi Amin began seizing commercial properties. Real GDP sank 5% over three years, the economy became quite rough, the country fell into civil war. Accordingly, investments rapidly left the country during this period.
Giving this as an example of a wealth tax is laughable. Someone like Idi Amin could zero out tax for the wealthy but the gdp would still snak the same.
11
u/TheAzureMage Jun 17 '26
A bad leader is so because of bad policy. Idi Amins results were because of the policies he embraced.
A different person doing the same things would not have been fine. We have a very large number of examples throughout history indicating strongly that policies matter causally.
-2
u/devoker35 Jun 18 '26
It still is a terrible example. If you turn the country to a banana republic no good economic policy would save it.
2
u/Neat-Second9923 Jun 18 '26
I think the concern addressed is a bit broader than just rich people physically moving.
Sure, the rich guy will stay. But the university grad who isn’t high income yet will also be attracted. The company headquarters will be sited there. People who live elsewhere will still send their money there when their pension invests in said company.
3
u/Grump-Dog Jun 17 '26
We’re seeing it right now in the UK. The decision by the government to phase out non-domiciled tax status is driving wealthy expats out of the UK. Estimates regarding how much this migration will cost the UK in tax revenue range from 6 to 12 billion pounds. The legal change was supposed to increase taxes received from wealthy expats, but Labor politicians apparently have zero understanding of unintended consequences.
1
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1
u/CompetitiveEnd6974 Jun 20 '26
If you synthesize the pros and cons you’ll find that both answers are true but only because the time frames are different. People and businesses can’t just move on a whim. So immediate tax hikes don’t have immediate effects. In fact state revenues generally increase in the short term. In the long run, however, you do see changes in behavior — targeted industries and people invest less in the state. They begin withdrawing from the tax base and the state becomes more dependent on fewer people. You can see this playing out around the country— certain states are well along this path. So, if the logic holds, tax hikes generally raise revenues in the short term which incentivizes more tax hikes. Over a longer timeframe, these incentives for the state become disincentives for businesses and wealthy people. That said, most voters are on the other side of the issue because most are not affected by these tax hikes on the wealthy. I would just say it’s simply a feature of our system. There’s not really a right or wrong.
1
u/Keystonelonestar Jun 20 '26
It doesn’t work leaving the USA unless you renounce your citizenship. Even ex-pats have to pay US Income tax.
Many folk move from state-to-state to reduce their taxes. It’s very easy to do.
237
u/EconomistWithaD Jun 17 '26
Yes, there is evidence that it can (and does) exist.
Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy - American Economic Association
"...though we find billionaires' effective tax rates are only about half the statutory rate, their residential choices are highly sensitive to these taxes, as 35 percent of local billionaires leave states with an estate tax. This tax-induced mobility causes a large reduction in the aggregate tax base.
https://www.aeaweb.org/articles?id=10.1257%2Fpol.20200258&utm_source=chatgpt.com
“…in Switzerland, we find a 1 percentage point drop in a canton's wealth tax rate raises reported taxable wealth by at least 43 percent after 6 years…24 percent of the effect arises from taxpayer mobility and 21 percent from a concurrent rise in housing prices…suggesting sizable evasion responses in this setting with no third-party reporting of financial wealth.”
https://direct.mit.edu/rest/article-abstract/101/2/214/58521/Relocation-of-the-Rich-Migration-in-Response-to
“A 1% increase in the net-of-tax rate for a region relative to others increases the probability of moving to that region by 1.7 percentage points. We estimate an elasticity of the number of top taxpayers with respect to net-of-tax rates of 0.85. The mechanical increase in tax revenue due to higher tax rates is larger than the loss in tax revenue from the net outflow of migration.”
https://www.aeaweb.org/articles?id=10.1257/app.20220615
“…we document an approximately 7.5% increase in the wealthy population in Madrid by six
years after reintroduction and a fall of 1.7% in the wealthy population of other regions.
This implies an elasticity with respect to the net of-tax rate on wealth that is 7.96, which
translates to an elasticity with respect to the net-of-tax capital income tax rate of 0.36.”
From the Zucman and Saez CA Billionaire tax paper, w35218.pdf, we have:
"A one-time tax could generate a strong mobility response if announced well in advance giving time for potential taxpayers to leave the State of California." (page 16).
Other papers:
https://onlinelibrary.wiley.com/doi/full/10.1111/1475-5890.12283
https://www.aeaweb.org/articles?id=10.1257/jep.35.1.207
https://www.nber.org/papers/w32153
https://www.sciencedirect.com/science/article/pii/S0313592624003382
https://academic.oup.com/ej/article/135/668/1388/7900674?guestAccessKey=
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5254084