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Tax Flight Is Real; Question 2 Would Make It Worse

September 12, 2016 Posted by Liam Sigaud - No Comments

Many liberal groups, including the Maine People’s Alliance, the Maine Center for Economic Policy and the Economic Policy Institute, assert that higher taxes on millionaires does little to motivate them to move to more tax-friendly states. In 2014, the Maine People’s Alliance claimed that research “demonstrates tax flight is a myth.” A blog post by the Maine Center for Economic Policy in 2013 declared, “Tax flight, to be blunt, is anecdote-fueled mythology by careful analysis…”

The data prove them wrong.

When faced with high taxes, wealthy taxpayers often look for greener pastures to invest in their small businesses, create jobs and donate to philanthropic organizations. If Question 2 passes in November—and incomes over $200,000 are taxed at a 10.15 percent rate, the second highest in the county—Maine’s out-migration trends are likely to accelerate.

Consider the number of returns filed by income bracket in every state. A simple comparison between New Hampshire and Maine reveals just how destructive our high-tax policies have been to attracting successful professionals and fostering growth. In 2014, nearly 1,500 millionaires lived in New Hampshire. The same year, only 730 millionaires resided in Maine. The disparity cannot be reasonably explained without noting that the lack of a personal income tax in Maine contrasts sharply with Maine’s 7.15 percent top rate (which at the time was even higher, at 7.95 percent). For a family earning $1 million, Maine’s income taxes cost about $75,000 in 2014.

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In case you think 2014 was an anomalous year, consider the graph above, which compares the number of wealthy residents (defined as those making more than $200,000) per 100,000 residents between Maine, New Hampshire and Florida since the year 2000. Maine consistently has about half the number of wealthy households per capita as New Hampshire.

Another line of evidence bolsters the tax flight hypothesis. Under Governor LePage’s leadership, Maine’s top income tax rate has been reduced from 8.5 percent to 7.15 percent, along with reductions in the estate tax. The results are clear. In 2010, before he took office, the Tax Foundation revealed that just 0.08 percent of returns in Maine reported $1 million or more in adjusted gross income. We ranked 48th in the country. The same study found that New Hampshire and Florida ranked 20th and 11th, respectively. Today, more than 0.11 percent of Maine’s tax filers report more than $1 million of income.

In recent years, Maine has made progress in creating a more hospitable environment for taxpayers in all income brackets, including high-income professionals. But our income, property and estate taxes continue to deter potential immigrants and drive many of our residents to leave.

Lawmakers and voters should be looking for ways to reduce the tax burden, not create one of the highest tax rates in the country, as Question 2 would do.