Arguing For Low Taxes On Wealthy, Fox Promotes “Tax Flight” Myth

In an attempt to discredit higher taxes on the wealthy, Fox's Stuart Varney claimed that high taxes lead to out-migration of residents. However, experts have found that while migration is due to an array of issues, taxes are not the primary cause.

On Fox & Friends, Fox Business' Stuart Varney claimed that states that have experienced high rates of out-migration “all have very high tax rates on top income earners.” He went on to suggest that if President Obama's plan to raise taxes on the wealthy is enacted, the U.S. will experience a lack of revenue, a slowing economy, and high unemployment.

The segment is based on a Fiscal Times article that outlines five states (Ohio , New Jersey, California, New York, and Illinois) that have experienced decreases in residency, allegedly due to higher taxes.

However, pinning resident migration patterns on taxes alone ignores a plethora of other factors that drive locational decisions. As Jon Shure, deputy director of the State Fiscal Project at the Center on Budget and Policy Priorities, states, “What about differences in the job market?  Oil prices?  Housing costs?  Shouldn't we take these and other potential factors into account?”

The fundamental flaw with Varney's logic and the Fiscal Times analysis is a confusion of correlation with causation - just because a state has experienced an increase in taxes and out-migration doesn't mean the root cause of the loss of residency is increased taxation. Indeed, demographers and economists who study spatial location decisions find that taxes have little to no effect on migration when other factors are taken into account.

According to a report by the Center on Budget and Policy Priorities (CBPP) that outlines research on locational decisions, the effect of taxes on migration is negligible. From the report:

Critics of tax increases (and advocates of tax cuts) have sounded their alarm so loudly and often that their unproven assertion, “if you tax them, they will flee,” has gained credibility among some policymakers and journalists. But, thanks in part to wider access to actual tax return data, independent analysts have shown that the alarmists are wrong. More careful, thorough studies have assembled compelling evidence that the effects of tax increases on migration are, at most, small. In other words: raising taxes won't spark a large wave of out-migration, and cutting taxes won't spark a large wave of in-migration. [Center on Budget and Policy Priorities, 8/4/11]

Furthermore, research conducted by the Stanford Center on Poverty and Inequality studying California migration patterns of high income earners found that “millionaire migration” is simply a myth. According to an article in the Stanford News:

The reason the number of California millionaires varies from year to year has almost nothing to do with taxes, the researchers found. Instead, the numbers change as incomes fluctuate, most likely because investments are sensitive to market cycles.


They found that millionaires did not flee as a result of the tax increase (in fact, more millionaires moved into the state than out during that period), nor did millionaires from elsewhere move to California as a result of the tax cuts. [Stanford News, 11/2/2012]

The CBPP report further suggests that a reduction of taxes in states leads to a reduction of high-quality public services, which may promote out-migration.