The myth of the rich who flee from taxes


Last month, Vladimir V. Putin hugged his newly minted fellow Russian citizen, the actor Gerard Depardieu, posing for cameras at the Black Sea port of Sochi. “I adore your country,” Mr. Depardieu gushed — especially its 13 percent flat tax on personal income.
Sochi may not be St. Tropez, but it does have winter temperatures in the 60s and even palm trees. Mr. Putin’s deputy prime minister confidently predicted a “mass migration of wealthy Europeans to Russia.”
Here in the United States, the three-time Masters champion Phil Mickelson recently walked off the 18th hole at Humana Challenge and said he might move from California because the state increased its top income tax rate to 13.3 percent from 10.3 percent.
“Hey Phil,” Gov. Rick Perry of Texas wrote in a Twitter message, “Texas is home to liberty and low taxes … we would love to have you as well!!” Tiger Woods later said that he had left California for Florida for just that reason years ago. Mr. Mickelson can “vote with his Gulfstream,” a Wall Street Journal editorial noted, and warned California to “expect a continued migration.”
It’s an article of faith among low-tax advocates that income tax increases aimed at the rich simply drive them away. As Stuart Varney put it on Fox News: “Look at what happened in Britain. They raised the top tax rate to 50 percent, and two-thirds of the millionaires disappeared in the next tax year. Same things are happening in France. People are leaving where the top tax rate is 75 percent. Same thing happened in Maryland a few years ago. New millionaire’s tax, the millionaires disappeared. You’ve got exactly the same thing in California.” That, at least, is what low-tax advocates want us to think, and on its face, it seems to make sense. But it’s not the case. It turns out that a large majority of people move for far more compelling reasons, like jobs, the cost of housing, family ties or a warmer climate. At least three recent academic studies have demonstrated that the number of people who move for tax reasons is negligible, even among the wealthy. Cristobal Young, an assistant professor of sociology at Stanford, studied the effects of recent tax increases in New Jersey and California.
“It’s very clear that, over all, modest changes in top tax rates do not affect millionaire migration,” he told me this week. “Neither tax increases nor tax cuts on the rich have affected their migration rates.”
The notion of tax flight “is almost entirely bogus — it’s a myth,” said Jon Shure, director of state fiscal studies at the Center on Budget and Policy Priorities, a nonprofit research group in Washington. “The anecdotal coverage makes it seem like people are leaving in droves because of high taxes. They’re not. There are a lot of low-tax states, and you don’t see millionaires flocking there.” Despite the allure of low taxes, Mr. Depardieu hasn’t been seen in Russia since picking up his passport and seems to be hedging his bets by maintaining a residence in Belgium. Meanwhile, Russian billionaires are snapping up trophy properties in high-tax London, New York and Beverly Hills, Calif.
“I don’t hear about many billionaires moving to Moscow,” said Robert Tannenwald, a lecturer in economic policy at Brandeis University and former Federal Reserve economist. Along with Nicholas Johnson, he and Mr. Shure are co-authors of “Tax Flight Is a Myth,” a 2011 research paper. Of course, some people do move for tax reasons, especially wealthy retirees, athletes and other celebrities without strong ties to high-tax locations, like jobs and families. In renouncing his French citizenship, Mr. Depardieu follows other French celebrities, the chef Alain Ducasse, the singer Johnny Hallyday and Yannick Noah, a former tennis star. Several Paris hedge fund managers have decamped to London and the fashion mogul Bernard Arnault applied for Belgian citizenship, though not, he has said, for tax reasons.
Stars like Mr. Depardieu and Mr. Mickelson certainly have incentives to move. Mr. Depardieu complained that he paid 85 percent of his income in taxes in France last year and has paid 145 million euros over 45 years. France has a top rate of 41 percent as well as a wealth tax, and the Socialist president, François Hollande, is trying to impose a temporary surcharge of 75 percent on incomes over 1 million euros. Mr. Mickelson earned more than $60 million last year, Sports Illustrated estimates, which means the three-percentage-point California tax increase could add up to an additional $1.8 million in tax.