Many state legislators share the common concern that if they increase taxes on their wealthiest residents, those residents will move to lower tax jurisdictions. However, data suggests that there is little basis for that concern.
No one likes paying taxes. Most people given the option to pay fewer taxes would choose to do so. This creates a dilemma for state governments in the U.S. where people can freely move to other states. Legislators often fear that if they raise taxes on their wealthiest residents, those residents have the means and ability to move to other states that have lower taxes.
The possibility of this happening is guaranteed to be mentioned in any legislative debate about the appropriate amount to tax the wealthy.
However, as Private Wealth discusses in "Higher Taxes Don't Scare Millionaires Into Fleeing Their Homes After All" the legislative fears are mostly unfounded.
A new study looked at 13 years of data and concluded that very few wealthy people move to pay lower taxes. The study found that rich people move because of taxes only 2.2% of the time. In fact, millionaires move to different states at a lower annual rate than the general population.
People who only make $10,000 a year are more likely to move to another state than are millionaires. The reason for this is that wealthy people are not normally idle. They are employed or own their own businesses. They cannot simply pick up and move.
This study looked at income tax rates. It will most likely be cited in estate tax debates as well. That could be a mistake as once the wealthy retire it stands to reason that it is easier for them to move.
Reference: Private Wealth (May 26, 2016) "Higher Taxes Don't Scare Millionaires Into Fleeing Their Homes After All"