New Jersey isn’t the only state with a proposal to raise new public revenues needed to pay for the public services and investments that help build a strong state economy. Massachusetts voters are set to vote this fall on a ballot question to fund education and transportation through a tax increase on incomes over $1 million. To counter the inevitable narrative of millionaire tax-flight incessantly pushed by opponents of higher top tax rates, Massachusetts Budget and Policy Center has released a report on the economic experiences of the eight states with the highest tax rates on high incomes including New Jersey. Their straightforward findings make a compelling case for embracing a millionaire’s tax increase here in the Garden State.
The report first argues that states can have both higher tax rates for millionaires and a high concentration of millionaires. In fact, several of the top-tax states are among those with the largest number and share of millionaires – California, New York and New Jersey in particular.
As to whether states with millionaire taxes see reduced growth in the number of millionaire tax filers – addressing the popular notion that high tax rates on the highest earners drive them away – the report finds little to backup that assertion. In fact, these states have seen “at least as strong growth in the number of million-dollar incomes as other states” with California and New York leading the pack. These changes are more likely the result of rising incomes of existing residents than of millionaires relocating from other states.
The report also touches on a large scale study of millionaire tax filers in every county in the nation. A 2016 study found that individuals with very high incomes are less likely than others to relocate to other states. The success of these “embedded elites” often depends upon the business and social networks they have fostered over time. As Cristobal Young, Stanford scholar and co-author of the study, has noted, “Higher income earners show low migration levels because they are not searching for economic success – they’ve already found it.”
The report ends by citing the economic impact of New Jersey’s 2004 enactment of an 8.97 percent tax rate on incomes over $500,000. Opponents of a millionaire’s tax often – and incorrectly – describe the net loss of adjusted gross income since the tax increase went into effect as a blow to New Jersey’s economy. But when compared to the entire state economy, the perceived loss is less than 1 percent of the total income. The report goes on to punch more holes in the tax migration argument as we at NJPP have done repeatedly, concluding that “even in New Jersey” millionaire-tax flight has been “relatively unimportant.”
We couldn’t agree more.
