Editorial Staff

Study: Graduated Income Tax Proponents Rely on Analyses That Exclude the Vast Majority Of “Millionaires” to Argue Their Case

/in , , , , /by Editorial Staff
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

Past Research Drastically Undercounts Households Subject to Surtax Proposal

BOSTON – Advocates for a state constitutional amendment that would apply a 4 percent surtax to households with annual earnings of more than $1 million rely heavily on the assumption that these proposed taxes will have little impact on the mobility of high earners. They cite analyses by Cornell University Associate Professor Cristobal Young, which exclude the vast majority of millionaires, according to a new study published by Pioneer Institute.

“Professor Young’s wealth migration analyses don’t capture the full breadth of tax flight by million-dollar earners,” said Andrew Mikula, co-author of “Missing the Mark on Wealth Migration: Past Studies Drastically Undercounted Millionaires.” “High-net worth households that do financial planning could move to another state before they sell million-dollar assets. They fly under the radar in Cristobal Young’s work because most of them don’t earn more than $1 million in the year before they leave.”

The graduated income tax proposal advanced by the Massachusetts Teachers Association, the Service Employees International Union, and other union, advocacy, and religious groups, defines earnings as including salary and capital gains on the sale of assets, which makes net worth a critical component of households subject to the tax.

The methodology of Professor Young, who has made a point of weighing in on the Massachusetts graduated income tax in Commonwealth magazine, suffers from three major flaws.

First, he only counts those who earned $1 million in the year before they moved. This approach ignores those who move in anticipation of earning a seven-figure annual income from selling high-value assets.

Second, he fails to consider the 850,000 U.S. households with net worth more than $10 million that earn less than $1 million annually. Three-fifths of households with more than $10 million in net worth had annual incomes of less than $1 million. Cumulatively, these households have trillions of dollars in unrealized capital gains that, if sold, may be subject to a graduated income tax such as is proposed in Massachusetts.

Third, Professor Young ignores the role of tax policy in attracting migrants to Florida, which does not have income, capital gains, or estate taxes. Instead, he treats Florida as a mere outlier, claiming that “when Florida is excluded, there is virtually no tax migration” in the United States.

“That’s akin to saying that if you exclude Muhammad Ali, Louisville, Kentucky hasn’t produced any great boxers,” said Greg Sullivan, who co-authored the Pioneer report with Mikula.

According to IRS data, Florida had a migration inflow of 122,341 returns from taxpayers with adjusted gross income (AGI) over $200,000 (the highest income category) from 2012 to 2018, with an average return of $647,305. Net of those who left the state, Florida’s inflow returns over the period totaled $62.6 billion in taxable income among the wealthy.

Looking at all returns, Massachusetts is a significant source of wealth migration to the Sunshine State. Massachusetts experienced a net outflow of $20.7 billion in AGI from 1993 to 2018, with nearly half of it going to Florida. Almost three quarters of the AGI outflow went to either Florida or New Hampshire, another no-income tax state.

Finally, Young concludes that 2.4 percent of millionaires move each year. Advocates are wrong — and policymakers would be irresponsible — to downplay that finding. Even without correcting for Young’s undercount of millionaire households, the cumulative effect of an annual loss of high-net-worth taxpayers can add up to big numbers over a decade or more, exacerbating the already considerable exodus of Massachusetts residents to Florida and other low-tax states.

During a constitutional convention this or next year, Massachusetts legislators will decide whether or not to advance the graduated income tax amendment to the statewide ballot in November 2022.

About the Authors

Gregory Sullivan is Pioneer’s Research Director. Prior to joining Pioneer, Sullivan served two five-year terms as Inspector General of the Commonwealth of Massachusetts and was a 17-year member of the Massachusetts House of Representatives. Greg is a Certified Fraud Investigator, and holds degrees from Harvard College, The Kennedy School of Public Administration, and the Sloan School at MIT.

Andrew Mikula is Economic Research Analyst at Pioneer Institute. Mr. Mikula was previously a Lovett & Ruth Peters Economic Opportunity Fellow at Pioneer Institute and studied economics at Bates College.

About Pioneer

Pioneer’s mission is to develop and communicate dynamic ideas that advance prosperity and a vibrant civic life in Massachusetts and beyond.

Pioneer’s vision of success is a state and nation where our people can prosper and our society thrive because we enjoy world-class options in education, healthcare, transportation, and economic opportunity, and where our government is limited, accountable and transparent.

Pioneer values an America where our citizenry is well-educated and willing to test our beliefs based on facts and the free exchange of ideas, and committed to liberty, personal responsibility, and free enterprise.

Get Updates on Our Economic Opportunity Research

Related Posts:

Cris Ramón on How to Build Up Immigrant Businesses

This week on JobMakers, host Denzil Mohammed talks with Cris Ramón, son of immigrants from El Salvador, immigration policy analyst, and coauthor of the new report, Immigrant Entrepreneurship: Economic Potential and Obstacles to Success published by the Bipartisan Policy Center.

Taxation Without Legislation: Exploring Inflation’s Causes, Curses & Cures

Hubwonk host Joe Selvaggi talks with Bloomberg Columnist and National Review Editor Ramesh Ponnuru about the reasons for the sustained spike in inflation, its impact on savers and consumers, the possible policy remedies, and the likely intensity and duration of this cycle.

Hubwonk360 Video: If we tax them, will they leave?

In this brief, six-minute video, Pioneer Institute Executive Director Jim Stergios and Director of Government Transparency, Mary Z. Connaughton, walk through an amendment to the Massachusetts constitution that could dramatically increase the income tax on retirees and small businesses.

Julie King Brings Authentic Mexican Cuisine to Boston

This week on JobMakers, host Denzil Mohammed talks with Julie King, immigrant from Mexico and founder of Villa Mexico Café in the financial district of Boston. They discuss the challenges of re-launching a career in a new country. It’s not atypical for an immigrant to start at a lower rung of the economic and social ladder than they previously enjoyed - but it’s a win when they persevere despite the pains, and thrive.

Lifelines for the Untethered: Research to Reach and Recover Homeless Americans

This week on Hubwonk, host Joe Selvaggi talks with Stephen Eide, Senior Fellow at the Manhattan Institute about his newly released book, Homelessness in America: The History and Tragedy of an Intractable Social Problem, in which he asserts that a better understanding of the many challenges facing each homeless individual can lead to a tailored and more durable policy solution to this enduring societal problem.

As States Compete for Talent and Families, Massachusetts Experienced a Six-Fold Increase in Lost Wealth Compared to a Decade Earlier

With competition for businesses and talent heating up across the country, in 2020 Massachusetts shed taxpayers and wealth at a clip six times faster than even just a decade ago. Between 2010 to 2020, Massachusetts’ net loss of adjusted gross Income (AGI) to other states due to migration grew from $422 million to $2.6 billion, according to recently released IRS data now available on Pioneer Institute’s Massachusetts IRS Data Discovery website. Over 71 percent of the loss was to Florida and New Hampshire, both no income tax states.

Empowered or Exploited Entrepreneurs: Voters Determine Rideshare Drivers’ Fate on November Ballot

0 Comments
/
Hubwonk host Joe Selvaggi talks with communications expert and cofounder of South & Hill Strategies Lizzy Guyton about what the research on the profiles and preferences of rideshare drivers tells us about the industry, and the possible effects of designating independent contractors as employees.

Daniel Perez Takes Tenacity to Transport

This week on JobMakers, host Denzil Mohammed talks with Daniel Perez, immigrant from Colombia and founder, president and CEO of DPV Transportation Worldwide, based in Everett, Massachusetts. Daniel shares what it meant to tap into his entrepreneurial spirit and become a success, pivoting into healthcare and community service when the transportation sector was impacted by the pandemic, and finding a way to use his fleet for good.

Searching For Space: Massachusetts Real Estate in a Time of Covid

Hubwonk host Joe Selvaggi talks with real estate expert and broker/owner Pauline Donnelly about the disruption and trends created by the Covid-19 pandemic and steps buyers and renters can take to become more informed, prudent, and competitive in the frenzied market of Greater Boston and Martha’s Vineyard.

Mariam Nusrat Takes Gaming to New Heights

This week on JobMakers, host Denzil Mohammed talks with Mariam Nusrat, immigrant from Pakistan and founder and CEO of both the venture-backed Gaming Revolution for International Development and the not-for-profit Gaming Revolution for Inspiring Development, both with the acronym GRID.

Book Reveals How Tax Hike Amendment Would Damage Commonwealth’s Economic Competitiveness

If adopted, a constitutional amendment to hike state taxes that will appear on the ballot in November could erase the hard-earned progress Massachusetts has achieved toward economic competitiveness over the last 25 years and may not result in any additional education and transportation funding, according to a new book from Pioneer Institute, entitled Back to Taxachusetts?: How the proposed tax amendment would upend one of the nation’s best economies, which is a distillation of two dozen academic studies.

Forsaking Massachusetts’s Miracle: Risking Our Future With Past Mistakes

This week on Hubwonk, host Joe Selvaggi talks with Greg Sullivan, Research Director at Pioneer Institute and author of Back to Taxachusetts?, about the link between Massachusetts’s decision to reduce tax rates and a generation-long economic renaissance - and the reasons why new taxes such as the proposed, so-called "Fair Share Amendment" risk taking us back to economic stagnation or decline.