Millionaires Prefer High Tax States

Wednesday, October 6, 2010 at 10:07 PM by

Conservatives frequently argue that taxes drive wealthy people who they refer to as the job creators or job deciders  to states with lower and less progressive taxes. That is part of the rationale for a recommendation made by the conservative Wisconsin Policy Research Institute that Wisconsin should “reform” its mix of state and local taxes so we rely more heavily on sales taxes and user fees, thereby making our tax system more regressive. (And as we will discuss in our next post, that recommendation has been included in the latest draft of a “Wisconsin Prosperity Strategy” unveiled Tuesday by the Wisconsin Way.)

Those anti-tax arguments are undermined by new data on where millionaires live, which indicates that they actually prefer high tax states.

This has been a heated argument in recent years, especially in Maryland. Soon after that state created a higher tax bracket for millionaires, the national recession decreased the number of high income taxpayers and certain conservative groups selectively used the new numbers to make the unjustified claim that the rich were fleeing as fast as they could to lower tax states. (See this 2009 ITEP report for the rebuttal.)

With that backdrop in mind, it is very interesting to examine a report issued last week by the Phoenix Affluent Marketing Service, which is part of Phoenix Marketing International (PMI). They annually estimate the number of millionaires in each state, as a share of the state’s population. A blog post last Friday by Ed McLenaghan of the North Carolina Justice Center compared the new rankings with Census Bureau data on state and local taxes:

“It looks like millionaires just keep flocking to the states with the highest per capita state and local tax revenues. According to Phoenix Marketing International’s most recent report, the states with the highest concentrations of millionaires in 2010 were Hawaii, Maryland, New Jersey, Connecticut, and Massachusetts. All five of these states also happen to be among the top ten states for highest per capita state and local tax revenues, according to the most recent US Census Data on state and local finances. Even as a share of the state’s economy (as measured by total personal income), only Massachusetts drops out of the top ten highest tax states.

“At the bottom of the list of states with the most millionaires (from lowest to highest) are Mississippi, Arkansas, West Virginia, Kentucky, and North Dakota. With the exception of North Dakota, which obtains a large share of its revenue from oil and gas extraction, all of the states with the lowest concentration of millionaires also happen to be among the lowest in per capita tax revenues.

“…It seems that while millionaires might – all things being equal – like to pay lower taxes, they’d prefer not to give up the great public schools, high-quality public amenities like museums and parks, and sound infrastructure that our taxes make possible.”

Wisconsin is ranked 27th in the latest PMI estimates of millionaires per capita. As the WI Budget Project noted in a July 19 report, our state’s current ranking (which is for 2008) in total state and local taxes is 17th for taxes per capita and 13th for taxes as a percentage of income. We drop to 21st if one adds in fees and other state and locally generated revenue.

All of us would probably enjoy having the tax levels of Mississippi or Arkansas — IF it weren’t for the fact that taxes pay for services we value and that are critical for our state’s economic health.  But we have to account for such tradeoffs, and for millionaires it appears that those factors tip the scales in favor of living in high tax states.

Jon Peaock, project director
Wisconsin Budget Project

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