Today’s opinion piece by friend and Philadelphia Inquirer Columnist Kevin Riordan was a bromance breakup letter with New Jersey Governor Phil Murphy. And it wasn’t Kevin, it was Phil.
The article makes two arguments: 1) that Murphy is planning to tax New Jersey at a rate that will hurt the state, and 2) that a key plank of Murphy’s budget — revenues from legal recreational weed — might worsen the opioid epidemic.
I want to discuss the first. Riordan doesn’t get into the exact reasons that higher taxation is bad for the state — he implies that it’s because it will hurt the everyman:
But Murphy’s speech was far less than noble in failing to mention who, other than millionaires and Uber riders, will pay (answer: the rest of us) and how much (too much) for big and bigger Trenton’s wish list.
Riordan frames the taxation as bad because it hits everyday families, but too often the tax discussion follows some sort of simplistic supply-and-demand thinking: taxation goes up, so people move out. That argument often highlights one or two individuals who actually chose to leave the state. We at Blue Jersey did so in a recent post on the millionaire’s tax:
Where the issue raised in Murphy’s new tax proposals is more problematic is with the super-rich (billionaires), particularly in terms of those who are hedge fund managers or who operate through a corporate entity that can be easily moved from New Jersey to another state. In 2015 the hedge-fund multi-billionaire David Tepper, after living in New Jersey for 20 years declared himself a resident of Florida where along with 6 other states there is no income tax. According to Institutional Investor’s Alpha, he earned more than $6 billion from 2012 to 2015 so his move to Florida could have cost New Jersey hundreds of millions of dollars in lost payments.
Simply put, too often taxes are discussed using paint-by-numbers Econ 101 bromides. I want to work towards an evidence-based discussion of taxation that at least acknowledges current research in the field. Without it, we risk the same kind of simplistic thinking that often dominates discussions of minimum wage — that higher wages means less jobs — despite a body of research that shows that the effects of increases in minimum wage are much more complex than this, and rarely result in regional job losses (the linked Washington Post article includes a discussion of the controversial Seattle findings).
So what does the research say about millionaires moving for tax rates?
Professor Cristobal Young who dives into that research in No Jargon’s The Myth of Millionaire Tax Flight highlighting research in his book of the same name.
Here’s the cliff notes: there is no evidence that millionaires move in response to different tax rates. No matter your rate, all states lose some of their millionaires to Florida — but that includes other states without income taxes at all. And overall, millionaires mostly stay put — possible because the places they live have the conditions and connections to industry that help make them millionaires in the first place.
Let’s be clear — this research has limits. This is a hard topic to study, in part because there are lags between policy and when people move, and in part because the study is cross-cutting not necessarily of specific shifts of taxation rates in specific places. Maybe there is a reason to think this tax rate is different than other tax rate, or that New Jersey is different than other states. But it’s not the case that states with lower rates for millionaires, on average, attract more millionaires, nor that states with higher rates hemorrhage them. And every state, regardless of its tax level, loses retirees to Florida.
This is the research that is underpinning Murphy’s proposed millionaire tax. It’s also the underpinning of a better discussion about taxes. Let’s have that discussion.