From New Jersey to Ortonville, Taxes Don't Drive Migration of Wealthy

South Dakota's fiscal regressives like to pretend that our low taxes, including the absence of an income tax, are a great draw for getting folks to move here.

Reality will pop at least part of that balloon: a report in yesterday's New York Times makes clear that rich people just don't base their mobility on tax policy:

...[T]here is surprisingly little evidence to support the proposition that rich New Yorkers would bolt if forced to pay higher income taxes. Though tracking the movement of wealthy taxpayers from state to state is difficult, experts on public finance and migration say they have yet to document a substantial “rich drain” in states that have raised income taxes in recent years.

“At the level we’re talking about, there’s no quantitative evidence that it affects the mobility decisions of affluent taxpayers,” said Douglas S. Massey, a demographer at Princeton University and president of the American Academy of Political and Social Science [Nicholas Confessore, "Taxes Not Seen as Making the Rich Flee New York," New York Times, 2009.03.18].

New Jersey did see a little wealth-flight after 2004 when it raised its income tax 2.6% on folks making over a half-million a year. 50 to 350 "half-millionaire" households left the state—less than 0.1% of households in that tax bracket. That emigration cost the state maybe $38 million... but folks who stayed and did their civic duty chipped in $895 million more.

Confessore also points out that California's high taxes haven't driven residents of Silicon Valley to Sioux Falls yet:

Also in 2004, California voters approved a 1 percent income tax surcharge on personal income over $1 million, and Silicon Valley and Beverly Hills appear to remain well populated with the wealthy. From 2004 to 2007, according to a study by the California Budget Project, a left-leaning research organization, the number of millionaire taxpayers rose by close to 50 percent, well outpacing the 8.6 percent growth in the total number of those paying personal income tax.

“It is one of the oft-cited urban legends in California politics — that the rich are leaving California because of higher taxes,” said Jean M. Ross, the project’s executive director [Confessore, 2009.03.18].

As a local example, consider the Big Stone City–Ortonville metroplex. These two towns straddle the South Dakota–Minnesota border at the southern tip of Big Stone Lake. They are one mile and two bridges apart. If tax policy dictated migration the way South Dakota politicians like to say it does, we should expect hordes of poor downtrodden Minnesotans to hop the border to homestead in Big Stone City while commuting the extra mile to their jobs in Ortonville... or better yet, to just forsake Minnesota completely and build their businesses on the sunnier shores of the Whetstone River.

But if you've driven through Big Stone City and Ortonville, you know that's not the case. Big Stone City has a population of 549. Ortonville has a population of 1,980 (and like so many Minnesota towns, looks bigger than South Dakota towns of comparable population). Ortonville's main street has much more activity than Big Stone City's. Big Stone City does have a higher per capita income, but it also has higher poverty rates, especially among kids and senior citizens.

statistic	Big Stone City, SD	Ortonville, MN
population (2007)	549	1,980
per capita income	$19,297	$17,132
median household income	$41,659	$38,264
poverty	11.2%	9.2%
families in poverty	7.4%	7.2%
children in poverty	17.7%	9.5%
folks 65+ in poverty	16.5%	10.1%
median house value	$72,508	$88,593
new single-family permitted, 1996–2007	19	51

Perhaps some of Ortonville's wealthy elites have snuck across the river and settled in that little arm of Big Stone City along Lake Drive, but Ortonville is still seeing more building and better general welfare for families and Main Street. After years of different state tax policies, Ortonville is still the bigger town.

Culture and other factors—"school, jobs, even the weather"—have much more to do with migration than tax policy. There are other economic arguments to make about the wisdom of various tax policies, but let's put the canard about tax-driven migration to bed.