THE FALLACY OF THE ‘MILLIONAIRE EXODUS’

Much has been made of the increased taxes in Gov. Malloy’s budget—particularly on the wealthiest residents of the state. His appearance in Greenwich this week only solidified the “two Connecticuts” view. There is one in which the claim is that wealthy, Gold Coasters and other high-income people will move out of the state because of an up-tick in their income taxes. And there is one in which residents in urban areas think the rich should be taxed more.

Whichever view one may hold we should all stop for a reality check—no millionaire is leaving Connecticut because their income tax might go from 6.5 percent to 6.7 percent and they may have to pay a 3-percent tax on their yachts or their Mercedes. That’s just not going to happen.

Now, there may be a confluence of events that would cause some wealthy residents to move out of state—a potential new job, the desire to live closer to family, health (Arizona) or other non-economic issues. But Wall Streeters who live in Greenwich for instance, are not leaving the state for New Jersey or New York. Both those states (as well as Massachusetts and Rhode Island) still have higher marginal tax rates at the highest end. Gov. Malloy was well aware of that in crafting his plan.

Conservative talk radio hosts (which is all we seem to have in this state) continue to claim the top-earners and therefore top contributors to our state coffers, will move to Texas, Tennessee or Florida. Yeah, right. There one substantial thing stopping them from doing that—it’s called “quality of life.” Tennessee? Please. The only thing Nutmeggers want to hear about Tennessee is that the UConn women b-ballers whipped them and crybaby (and kind of scary) Pat Summitt on the court.

Does anyone really think multimillionaires are going to pick up their families and move to those states? Have they told their spouses of this plan? What about the wonderful schools (although there is that achievement gap problem), social connections, access to New York and Boston, relatively good state services and overall advantages of living in one of the best states in the country?

No one need take The Shad’s word for it. Reporter Keith Phaneuf of CTMirror.com wrote an eye-opening article when he was with the Journal-Inquirer of Manchester about the incredible increase in the amount of millionaires in Connecticut. Phaneuf reported, “According to statistics from the state Department of Revenue Services, the number of households that reported earning more than $1 million erupted upward by 124 percent between 2002 and 2007, after climbing just 8.6 percent over the prior five years.” (Shad’s emphasis added.)

Phaneuf then quotes well-known economist Fred Carstensen, “Ihey [the public] don’t buy that mythological argument” that high taxes are driving the wealthy out of state, said Carstensen, a professor of economics and director of the Center for Economic Analysis at the University of Connecticut. “There’s scant evidence that says this drives things,” he said, adding in reference to the 124 percent increase, “…there’s no question this is striking growth.”

The 2009 article also makes the point that relying too heavily on Wall Street and the highest-income earners to balance the budget is a dangerous game indeed. That’s exactly why Gov. Dannel Malloy took the “shared sacrifice” approach.

It’s probably the most difficult budget year since then-Gov. Lowell Weicker introduced the income tax. (Remember? Mr. Weicker, as a candidate, said an income tax was like throwing gasoline on the fire of recession and then promptly introduced one after being elected.) But it isn’t helpful that conservatives continue to claim the wealthiest among us are going to flee the state. There’s no evidence of it whatsoever and it doesn’t help the debate. Leave Connecticut for Texas? Get real.