How do you get more millionaires to live in your state? You tax them fairly and equitably. And you use that money to pay for investments that improve quality of life, like education and infrastructure that produce successful businesses. The wealthiest people might not be excited about their tax rates, but research shows that nearly none of them will be bothered enough to leave.
In general, people rarely change their state of residence. Those who do are often low-income, not wealthy elites searching for a better tax deal. People making around $10,000 are by far the most likely income group to move from state to state. Even among that relatively mobile group, only about 4.5 percent switch states in a given year. According to research by Stanford University, millionaires are even less likely to move. They switch states about half as often as low-income people.
Millionaires stay put because they're particularly tied to their communities. They're older, more likely to have kids and own homes, and almost all of them are married (90 percent). They have business and career success that depends on local relationships and knowledge specialized to their region — all things that don't easily translate to new locations.
Of the small percentage of millionaires who do move, there's little evidence that they're motivated by taxes. About half of those who move go to states that have higher or equivalent tax rates. A small sliver of millionaires move, and only a fraction of that sliver is more likely to move to a lower-tax state over a higher-tax state. If you put it all together, it amounts to a net 0.3 percent of the entire population of millionaires (three out of every 1,000) that move to lower-tax states on an annual basis.
And even that low percentage is skewed by Florida. It has become a haven for the rich for reasons beyond taxes, such as location, climate, cruise ports and plentiful established luxury amenities. If you exclude the Sunshine State from the data, "low-tax" states have virtually no edge on other states in terms of attracting affluent residents. It's a wash. Even Texas, which is also coastal and has no income tax, can't compete with Florida for new millionaires. This tells us it isn't about the taxes.
Once people succeed, they tend to stay put. And millionaires become even less likely to move once they retire. Some of the most frequent movers, on the other hand, are young, recent graduates who are unmarried.
And what do these young, college-educated, potential millionaires care about? It isn't tax rates on top incomes, which they don't yet earn. They want what everyone wants. A well-educated population. Thriving communities with arts and good restaurants. They care about the cost of living, quality of life, job markets and the availability of top-notch public schools where they can send their kids when they start families. We get those with public investments, not by slashing taxes.
If we give up hundreds of millions of dollars in tax revenues to make Arkansas's income tax rates more "attractive" to the wealthy, the best-case scenario is that lawmakers will eviscerate their own most important area of influence (the budget) and we will continue to be at the bottom of all the rankings on child well-being. The worst-case scenario? Arkansas becomes Kansas. And we will do all of that in exchange for, at most, a negligible effect on interstate migration.
State lawmakers hold the keys to the budget, which means they influence access to quality education, health care, an unbiased justice system, income mobility, modern roads and bridges, and even safe homes. All of these things matter desperately, and they matter right now. The Arkansas Tax Reform and Relief Task Force is preparing to release in September its recommendations for tax and budget decisions, with the hope of influencing legislators as they prepare to convene the General Assembly in January 2019.
Eleanor Wheeler is a senior policy analyst for Arkansas Advocates for Children and Families.