The greatest obstacle to policymakers enacting a modest personal income surtax on Rhode Island’s highest earners, those in the Top 1%, is the fear that any such measure will trigger a mass exodus of the Top 1% and harm the economy. Well, as the recent policy brief published by my organization, the Economic Progress Institute, makes clear, policymakers on Smith Hill can let go of this fear, because there has simply never been in any state such a mass exodus in reaction to tax policy.

The data show that annual interstate migration rates never exceed the low single digits, regardless of top tax rates and changes in those rates. The data show that migration patterns are similar across New England, despite differences in rates and approaches to taxation.

Most people move for job and family reasons, and there is no good evidence showing that anyone, even the highest earners, are moving only or primarily over tax rates. Indeed, across the country, the highest earners, including millionaires, are less likely to move than those with the lowest incomes. Those with high incomes, especially those with businesses, tend to be very grounded in their professional, business, and social networks, and so are less likely to uproot themselves and their families over changes in top marginal tax rates.

When people do move from state to state, many move from higher-tax states to other higher-tax states. And while it is true there is movement, especially among retirees, to warmer states in the south, many people make the reverse trip, offsetting some of the population loss. For the last six years, tax filers with income of $200,000 and above have moved into Rhode Island at a higher rate than they’ve moved out.

People warned that the Massachusetts Fair Share Amendment establishing a 4% surtax on income above $1 million would drive people away, and some Rhode Island politicians looked forward to welcoming all the millionaires who would flee across the border to the Ocean State. Yet, there is no evidence of such movement, let alone a mass exodus. Indeed, the early predictions of new revenue from the tax have proven to be significant underestimates, with well over $2 billion each year in new revenue helping to pay for education, public transit improvements, and free breakfast and school lunches for all students.

Currently, the Top 1% of filers pay less of their income in total state and local taxes (8.6%) than the 20% with the lowest incomes (13.3%). Enacting a 3% tax on taxable income above the Top 1% cut-off of approximately $625,000 per year (as proposed in House Bill 5473 and Senate Bill 0329) would both make our state tax system more balanced and generate an estimated $190 million annually. The legislation would have no effect on tax filers whose taxable income is $625,000 or less. This new revenue could fund programs that all Rhode Islanders would benefit from.

If you are a concerned citizen who wishes Rhode Island were a fairer and more equitable state, call or email your state legislators and tell them you support this legislation. I am not claiming absolutely no one will leave the state, but the data are clear that mass tax flight is a myth. It has never happened in any other state and will not happen here.

Alan Krinsky
Providence

Alan Krinsky, Ph.D., is the Director of Research and Fiscal Policy for the Economic Progress Institute.