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

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.

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

Which industry’s workforce has been hurt the most from the COVID-19 outbreak?

/
Unemployment claims have reached all-time highs in the U.S. recently…

State Ranking: Michigan, Hawaii, Rhode Island, Pennsylvania, and Nevada have been hardest-hit by COVID-19 jobless claims so far. Massachusetts ranks as 9th hardest-hit.

/
The U.S. Department of Labor reported today that in the week ended April 4, the advance number of seasonally-adjusted initial jobless claims was 6,606,000. This follows 6,867,000 initial claims filed in the week ended March 28 and 3,307,000 in the week ended March 21.

Report: MA Likely to See Sharp Spike in Unemployment Rate

The COVID-19 recession could cause Massachusetts’ unemployment rate to skyrocket to 25.4 percent by this June, according to a new policy brief published by Pioneer Institute. The authors recommend that the state join others in lobbying Congress for large block grants to avoid a severe fiscal crisis.

Pioneer Launches Report Series Highlighting Massachusetts Job Growth and Business Trends Since 1998

In “Some Big, Broad Economic Trends in Massachusetts,” Pioneer analysis of two decades of data shows fluctuating employment changes across the state, as well as firm size information and the largest employers. The report is part one of aa series that aims to provide deeper insight into COVID-19's economic impact.

COVID-19 Roundup from Pioneer: When will COVID-19 peak in MA?; Life in the aftermath; Tracking potential treatments; Getting America working again; Taking virtual learning to new heights & more!

/
Pioneer staff (and readers) share their top picks for COVID-19 stories highlighting useful resources, best practices, and questions we should be asking our public and private sector leaders.

New Policy Brief on Federal Relief Act's Impact on Massachusetts

/
Greg Sullivan and Charlie Chieppo review the impact of the Coronavirus Aid, Relief, and Economic Security Act on Massachusetts' budget.

Public Statement: Extend Massachusetts’ Income Tax Filing Deadline

/
Massachusetts must extend the tax filing deadline, just as the federal government and 34 of the 41 states that tax income have done.

Pioneer Report Offers Framework for Improving Greater Boston’s Global Competitiveness

Pioneer’s new report, Greater Boston as a Global Competitor, provides useful metrics to help Massachusetts formulate a strategy to become an even more attractive place for innovators and talent.

Pioneer Institute Announces New Economics Data Tool: MassEconomix

A new addition to Pioneer Institute’s Mass Watch data tool suite, MassEconomix, provides time-series data on job and business growth for all of Massachusetts. Pioneer has partnered with the Business Dynamics Research Consortium (BDRC), which is housed at the University of Wisconsin’s Institute for Business and Entrepreneurship, to acquire an employment database known as “Your-economy Time Series”, or YTS. This database provides a year-by-year look at companies and jobs that have existed in the Commonwealth since 1997.

Pioneer Urges MassDOT to Reconsider At-Grade Throat Option for I-90 Allston Multimodal Project

Pioneer's new Public Comment calls on the Massachusetts Department of Transportation to revise its Scoping Report on the I-90 Allston Multimodal Project and recommend an additional option to the Federal Highway Administration.

New Study: Excessive Occupational Licensing Hurts State Economy, Reduces Tax Revenue

Overly burdensome occupational licensing requirements not only slow down the Massachusetts economy and cost the state tens of thousands of jobs, but also reduce state and local tax revenue, according to a new study published by Pioneer Institute

Study Calls for Easing MBTA Procurement Restrictions and Beefing Up Project Management Capacity

Reforms needed if T is to achieve increased capital spending…

The Connection Between Property Taxes and Pension Funding

/
A recent study from economist Evgenia Gorina, published in the…

Time to Say "Cut" on Massachusetts' Film Tax Credit?

/
State Senate President Karen Spilka is taking preliminary steps…

A Primer on Secondary Revenue Sources for Local Governments

/
Using Pioneer Institute’s MassAnalysis tool, one can find information…

Coastal Towns Charge the Most Permit Fees Per Capita in Massachusetts

/
One of the ways local governments raise revenue is by requiring…

The State Legislature Should Steer Clear of New Occupational Licensing Laws

/
The reach of occupational licensing laws has expanded greatly…