As Minnesota policymakers consider proposals to increase income taxes on the highest-income households as part of the FY 2014-15 budget, it’s time to put one misconception about taxes to rest. Raising income taxes on the wealthy does not cause them to flee a state in significant numbers.
In a recent analysis, Tax Increases Don’t Prompt High-Income Households to Move Out of State, we found states that raised taxes on high-income residents in recent years — such as New Jersey, Maryland and California — did not see a rush of wealthy households moving out of their states.
The research finds that the national economy — not taxes — has a larger impact on changes in the number of high-income households in a state. Moves are also more likely to be triggered by a major life event, such as divorce.
Our analysis concludes that raising taxes on Minnesota’s highest-income households would not cause them to leave the state in significant numbers, but it would provide revenue for critical investments in quality schools, affordable higher education, and safe communities that make people want to keep Minnesota as their long-term home.