The Phil Mickelson effect: Do millionaires flee states with high taxes?

The question of whether millionaires move to other states to avoid taxes is being asked afresh here in California after golfer Phil Mickelson, the world’s seventh-richest athlete, said he may move to Florida. A new state tax hike touted by Gov. Jerry Brown (D) will push his total state and federal tax rate to over 60 percent.

Republicans are lining up to say, “I told you so.”

"Sixty percent of your income? I don't think so," said state Assembly Republican leader Connie Conway. "The man has a family. He has a business to run. He is a business. Sixty percent of income goes way beyond fair share.”

She told the Associated Press that Mr. Mickelson’s exit “will be the first of many.”

Studies paint an inconclusive picture.

One, released in November by Stanford Center on Poverty and Inequality, finds no significant evidence of millionaires fleeing a state when their state tax rate rises. " 'Millionaire migration' is simply a myth," it states.

Another, released in 2011 by the New Jersey Treasury Department, found that higher tax rates had an effect on migration, though not enough to offset the revenue gains from the higher taxes. But migration losses "would cumulate over time," it concluded. "Our analysis of the New Jersey 2004 'millionaires’ tax' suggests that over time migration effects could offset a meaningful share of the revenue boost."

"Additionally, out-migration associated with higher income taxes will likely diminish other streams of state revenue, such as corporate tax, sales tax, and property tax, as well as degrade a state’s overall economic performance, in turn associated with further out-migration," the authors wrote.

The issue is a politically sensitive one for California. In November, state voters passed Proposition 30, which raises tax rates 1 to 3 percent for those making more than $250,000 a year. The initiative is integral to California's new budget, which shows a surplus. But along with Washington's "fiscal cliff" solution – which also will raise taxes on the rich – there are questions about how California's millionaires will respond.

“If there is anything that can be termed a mass exodus, then I think that will be symbolically very important,” says Jessica Levinson, former political reform director for the Center for Governmental Studies.

Experts acknowledge that any migration effect is hard to gauge.

The question is more complex than many make it out to be, says Michael Shires, associate professor of public policy at Pepperdine University.

“The question of whether the wealthy are leaving or will leave California is a tough one,” he says. “There is clearly a lot of anecdotal evidence of this shift – all of us know people who say they are doing it."

For those like Mickelson, who can take their game and live elsewhere, it is quite easy to move. “But for the many affluent Californians whose wealth is dependent on California-based enterprises, moving out of state does not relieve them of their tax burden, so there is less impetus to do so,” he adds.

He says Silicon Valley and Hollywood are examples of two places where the wealthiest Californians are tethered to California – unless their firms move, too.
For those who earn their wealth from retail or real estate, it is also not possible to take these earnings easily out of state. Service providers like lawyers and accountants – and Mickelson – are more mobile, but only to the extent that they can compete and provide services in the new landscape.

To Gary Aminoff, communications director for the Republican Party of Los Angeles County, the most vulnerable group comprises "those who earn from $250,000 to $3 [million] to $5 million a year.” 

The concern is that those taxpayers might leave as others who pay little or no taxes come in. But to others, the flip side of that scenario is the real concern: millionaires might not leave California in droves, but the new taxes might dissuade others from moving to the Golden State.

“It’s unlikely that the take hike will cause many rich people to move out of the state," says Jack Pitney, professor of government at Claremont McKenna College. "The bigger risk is that it will deter individuals and businesses from moving into the state.”

He notes that, according to US Census data, fewer Americans are moving into California than are moving out. “The tax increase could accelerate that trend.”