An important study published today conclusively debunks the myth that raising state income taxes on the wealthy causes many of them to flee to lower-tax states. It also shows that repealing state income taxes — a change the American Legislative Exchange Council (ALEC) and others are promoting across the country — likely won’t attract rich business owners and workers with sought-after scientific and technological skills, let alone average families.
“The most striking finding of this research is how little elites seem willing to move to exploit tax advantages across state lines,” write the authors, Stanford University sociologists Cristobal Young and Charles Varner and Treasury Department economists Ithai Z. Lurie and Richard Prisinzano. “[S]tate . . . governments have considerable leeway for independent tax policy,” they conclude. “States can make policy choices that contribute to the reduction of inequality.”
Unlike earlier studies on whether state taxes affect high-income people’s moves, which were based on limited data, the new study examined every federal tax return with more than $1 million in reported income filed in every state from 1999 through 2011. To isolate the effects of income taxes, the authors held constant other potential factors, such as climate and housing costs.
Here are four of their key findings.