Do high taxes on our rich make any sense?

We need to do more than tax high incomes. We need to limit them.

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SOURCEInequality.org

Home sweet home. For Jeff Bezos, one of our planet’s three richest human beings, the state of Washington neatly fit that description for nearly 30 years. But then this past November Bezos suddenly announced he was moving to Miami.

Why the move? In an Instagram posting, Bezos explained that he wanted to be closer to his dear parents in Florida and the Cape Canaveral operations of his corporate aerospace hobby.

Left unmentioned: His once-beloved state of Washington, a state notorious for going easy on its richest residents at tax time, has put in place a new 7 percent tax on long-term capital gains in excess of $250,000. By relocating to Florida, a state with no state income tax or levy on capital gains, Bezos stands to save what Time describes as “hundreds of millions of dollars in taxes.”

Actually, make that billions of dollars in tax savings.

Just before Washington’s new tax went into effect in 2022, Florida journalist Jennifer Torres notes, Bezos “sold about $15.7 billion worth of Amazon stock — sidestepping approximately $1.1 billion in taxes from stock sales that would have been due under the new capital gains tax.”

Earlier this week, with the new tax fully in effect, the newly Miami-based Bezos finished unloading — over the course of just nine trading days — another 50 million Amazon shares, saving, notes CNBC’s Robert Frank, at least another $610 million.

Those savings will be multiplying rapidly in the years ahead now that Bezos has resumed his annual Amazon stock-trading pattern. Beginning in 1998, Frank notes, Bezos “sold billions of dollars worth of shares almost every year for more than two decades.”

But the Bezos move to Miami doesn’t just save the Amazon executive chairman big bucks in taxes. His exit out of Seattle gives our nation’s most avid apologists for grand fortune what they see as more “evidence” that any moves to raise taxes on our richest will always backfire.

Jurisdictions that tax the rich, the standard conservative mantra goes, will always wind up watching their richest flee to jurisdictions that sensibly refuse to “soak the rich.” The over $600 million that Bezos has just saved in taxes on his most recent stock trades, Heritage Foundation “distinguished fellow” Stephen Moore exulted on social media last week, “further confirms the impact of taxes on relocation decisions!”

But right-wing harrumphing about the foolishness of raising taxes on the rich, note analysts who actually bother to study tax data, rests on a relative handful of high-profile anecdotes — like the Bezos windfall — that profoundly distort the actual tax-the-rich story.

So points out sociologist Cristobal Young in his 2017 book, The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich. The view that the “freedom of movement” our richest enjoy will always undercut any move to raise more tax revenue from the rich, Young notes, “has become increasingly prominent in public debates over taxes, especially at the state level.” But that view, he posits, in no way reflects the “actual evidence.”

“Migration overwhelmingly occurs when people are establishing their careers,” the Cornell University-based Young notes. “People almost never move when they are at the advanced career stage.”

The prime reason our awesomely affluent stay put? The wealthiest among us have oodles of “business and social contacts that make them prominent, well-connected insiders where they live.”

The numbers back up Young’s case. His research draws on data “from the tax returns of every million-dollar income earner in every U.S. state over thirteen years,” some 45 million tax records in all. He’s also analyzed Forbes global billionaire data to probe the “propensity of economic elites” to emigrate outside the nations of their birth.

“By the time people reach the peak of their careers — and enter the top tax brackets of their states and countries — many have become embedded elites,” his research shows. “Places are sticky: When you achieve success in a place, it becomes harder to leave.”

Other researchers see similar dynamics at play.

“Many state lawmakers overestimate how sensitive rich people are to a few percentage points’ difference in the state tax rate,” as Carl Davis of the Institute on Taxation and Economic Policy noted last fall.

Differences in state tax rates on high incomes can often amount to much more than a few points. Deep pockets in Florida, for instance, may get a free-pass at tax time, but their counterparts who call New York home face a 10.9 percent state tax rate on income over $25 million. Those in that income bracket who live in New York City face an additional 3.876 percent levy on income above that level, bringing their total top-bracket tax rate to 14.776 percent.

Yet the state of New York, a new Fiscal Policy Institute report points out, has actually been gaining millionaires. And some three-quarters of the rich who have left New York have relocated in Connecticut, New Jersey, and other high-tax jurisdictions.

The most vivid evidence that our richest are not fleeing en masse from higher-tax places? That evidence is coming from the luxury real estate market. In 2023’s fourth quarter, Mansion Global reported last month, New York City saw a 9 percent annual jump in the sales of residential properties in the $20 million-plus price range.

The total value of the quarter’s luxury home sales, notes Coury Napier, the director of research at the Serhant realty giant, topped $530 million, “a significant 37.6 percent jump from last year’s volume.”

Right-wing champions of the richest among us simply ignore stats along this line. They continue to insist that taxes on the rich are running far too high in far too many places. Our actual tax-time reality: Taxes on our rich in no places are running high enough. Even those jurisdictions that now tax the rich at our nation’s highest rates leave our wealthiest, after taxes, still fabulously wealthy.

And that creates real problems for the rest of us. In trendy metro areas, our most affluent bid up the cost of real estate, in the process making housing increasingly unaffordable for moderate- and low-income households. The same Fiscal Policy Institute study that shows that higher tax rates on New York’s top 1 percent are not driving those affluents away indicates that average families are increasingly finding the city unaffordable and making their exit.

“In 2022, the most recent year data was available,” as the New York Times notes, “the richest New Yorkers left the state at far lower rates than all other income groups.”

We need to fine-tune our tax-the-rich focus. We need to do more than tax high incomes. We need to limit them.

FALL FUNDRAISER

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