Editorial Staff

Study: Methodology of Noted “Millionaire’s Tax” Researcher Excludes Vast Majority of Millionaires

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

The work of a Stanford University Professor whose research has formed the foundation of efforts, such as one scheduled to appear on the Massachusetts ballot in November, to impose surtaxes on high earners is flawed because it excludes the vast majority of millionaires, according to a new study published by Pioneer Institute.

Eight Reasons to Question Professor Cristobal Young’s Conclusions about Millionaire Migration

Professor Cristobal Young’s research has found that no more than 2.4 percent of U.S.-based millionaires changed their state of residency in any given year.  But his methodology, which he describes as “people who earned $1 million or more in year t and changed their state of residency between year t and t+1,” captures just a small fraction of U.S. millionaires.

The ballot measure, known as Proposition 80, would amend the state constitution to add a 4 percent surtax on all annual income over $1 million.

The Federal Reserve Board estimates that there were 14.7 million U.S. households with net worth of $1 million or more in 2016, but only 6.8 percent of them had incomes of $1 million or more that year.  During the same year, 92.3 percent of the 4.43 million households with net worth between $2.5 million and $10 million had incomes of less than $1 million, and would therefore be excluded from Professor Young’s research.

“There were 14.7 million U.S. households with net worth of $1 million or more in 2016,” said Pioneer Executive Director Jim Stergios. “But in 2015, just 438,370 taxpayers fit Professor Young’s criteria.”

When high net worth individuals do earn $1 million or more in a year, they tend to do it on an irregular basis.  According to IRS data, the majority of U.S. taxpayers who reported gross annual incomes of $1 million or more over a nine-year period did so just once during that time.  Less than 6 percent earned $1 million or more in each of the nine years.

Pioneer Institute Research Director Greg Sullivan, author of Eight Reasons to Question Professor Cristobal Young’s Conclusions about Millionaire Migration, finds that Professor Young underestimates the cumulative effect of millionaire migration.  If Proposition 80 is adopted and Massachusetts experiences a 1.5 percent annual net out-migration of millionaires, which is below Young’s 2.4 percent estimate, by 2038, the Commonwealth will receive less in total income and surcharge taxes from taxpayers with incomes of $1 million or more than it would have if the measure had not been adopted.

Florida, which has no income, capital gains or estate taxes, accounts for almost half the out-migration of adjusted gross income from Massachusetts, far more even than New Hampshire, which also has no income tax.  Professor Young argues that the evidence for migration of millionaires is largely driven by the Sunshine State and has written that “When Florida is excluded, there is virtually no tax migration.”

“Saying there’s virtually no tax migration when you exclude Florida is like saying that if you exclude Muhammad Ali, Louisville hasn’t produced many great boxers,” said Sullivan.

More evidence that Professor Young underestimates the impact of taxation on migration patterns of the wealthy is found in the fact that five jurisdictions with no capital gains taxes have the highest average capital gains income.  One would hardly expect Wyoming, Nevada, Florida, Washington, and U.S. citizens living abroad to lead in this area, which is evidence that millionaires move to these jurisdictions to realize large capital gains distributions.

About the Author

Gregory W. 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 holds degrees from Harvard College, The Kennedy School of Public Administration, and the Sloan School at MIT.

About Pioneer

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.

Get Updates on Our Economic Opportunity Research

Related Posts

Massachusetts Releases New Permanent Regulations for MBTA Communities Act

The April edition of The House Call provides an update regarding the MBTA Communities Act's implementation, with some communities amending their zoning via either referendum votes or Town Meeting this spring. The newsletter also includes a discussion of communities that have eliminated minimum parking requirements in recent years.

Historical Domestic Migration Patterns: Putting Massachusetts in Context

This week's edition of Mapping Mass Migration features an analysis of newly released data from the Census Bureau, its March supplement of the Current Population Survey. Our analysis covers how migration trends have played out nationally since 1948, including the demographics of movers, the extent of their migration (within a county, across counties, to another state, etc.), and the most common reasons movers cite for changing their primary residence. The newsletter concludes with a brief discussion of what might account for a decline in overall migration rates nationally and where Massachusetts fits in.

Pioneer Institute Study Finds Outdated U.S. Immigration System Delays Creation of 150,000 Businesses and 500,000 Jobs

Global competitors seizing opportunities to attract top talent

The House Call – Cambridge Adopts a Zoning Ordinance Allowing 4 to 6-Story Residential Buildings Citywide

The March edition of The House Call covers recent zoning changes in Cambridge that allow 4 to 6-story buildings on every residential lot. It also summarizes reform recommendations from a state commission tasked with advising the Healey administration on how to ramp up housing production.

Study: Inclusionary Zoning Helps Some, but Can Jeopardize Broad-Based Affordability

Policies often force developers to raise market-rate prices to compensate for losses on affordable units

Pioneer Institute Study Says MA Housing Permitting Process Needs Systemic Reform

Highlights Bureaucratic licensing process and appeals as areas to fix

Mapping Mass Migration – New 2024 Census Estimates Show Surge in Population Growth, With Considerable Caveats

This week's edition of Mapping Mass Migration will cover 2024 state population estimates and components of change from the Census Bureau, how trends are impacting Massachusetts, and an analysis of how a methodological change significantly impacted their estimates for net international migration from 2022 to 2024 and what that means for the number and demographic backgrounds of immigrants captured in the data.

Study Finds Bump in State Population Due to Changes in Census Bureau Methodology

BOSTON – State leaders cheered in January when the U.S. Census Bureau estimated that Massachusetts’ population grew by 69,000 in 2024, more than at any other time in 60 years. Unfortunately, a closer look reveals that the higher estimates are largely driven by a change in Census Bureau methodology designed to better capture the influx of humanitarian migrants.  

The House Call – Accessory Dwelling Units are Officially Legal Statewide in Massachusetts

This issue of The House Call covers Massachusetts' recent legalization of accessory dwelling units, as well as a bill filed in the state legislature last month that would broadly prevent localities from enforcing certain housing-related regulations. 

Pioneer Institute Study Compares MA Workforce Development System to Those in Peer States

(Boston, Mass) - As Massachusetts has significantly increased investment in a myriad of workforce training programs to better compete for talent, a new Pioneer Institute report examines the Massachusetts workforce development system to determine what operational changes would better maximize results, and it compares the system to those in peer states. 

Mapping Mass Migration: New England State and County Population Change, 2020 to 2023

This week's edition of Mapping Mass Migration will cover state and county population change in Massachusetts and New England from 2020 to 2023, how population has shifted for major demographics during that period, and how population change in general fits into the broader picture of a state's economic wellbeing. 

McAnneny’s January Musings – Legislative Transparency Takes Center Stage in the New Year

A new year unfolds with so much promise.  It offers us all a fresh start, a clean slate, a reset.  It is a time for reviewing, reassessing and revising. 

The House Call – January

This issue of The House Call covers the implementation of Boston's energy efficiency standards for large buildings. It also provides an update on the MBTA Communities Act after a busy fall Town Meeting season featuring rezoning votes, forced referenda, and - more recently - the SJC's Milton case decision.

Mapping Mass Migration – Remote Workers: The Most Mobile Residents

This week's edition of Mapping Mass Migration will cover…

Statement on MBTA Communities Law Milton Ruling

Today, the Massachusetts Supreme Judicial Court ruled that the…

Mapping Mass Migration: Massachusetts Remains a Top Destination for Immigrants

This week's edition of Mapping Mass Migration will cover foreign migration into Massachusetts in 2023 and since 2010, including an examination of the most and least attractive destinations for immigrants by state, a demographic breakdown of immigrants arriving in Massachusetts, and an analysis of how these trends have changed over time.

Mapping Mass Migration: New Census Data Shows Continued Out-Migration from Massachusetts to Competitor States

"Mapping Mass Migration" is Pioneer's new newsletter covering…