Moving Millionaires
You’ve heard the old line about three kinds of falsehoods: lies, damned lies, and statistics. All three are easy to find on the Internet.
Unlike lies, though, statistics can be useful if taken with a grain of salt.
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For instance, you want to remember that correlation doesn’t equal causation. The fact that event A repeatedly occurs right before event B doesn’t prove A causes B. Maybe they’re connected, or maybe it’s just coincidence. You can’t be sure until you dig deeper.
This matters for both economic and public policy questions. Consumers, businesses, and governments decide to do X because they believe Y will follow. But maybe it won’t, because X has nothing to do with Y.
Recently I got a useful reminder of this that might surprise you. It has to do with moving millionaires.
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Mobile Taxpayers
Many analysts (including me) worry about a pension fund crisis on the state and local level. Low interest rates and poor investments threaten the stability of public employees’ retirement plans, many of which weren’t fully funded in the first place.
A big part of the problem is that taxpayers in the US can (and do) move. High-tax states that desperately need the revenue to fund pension obligations may see their wealthiest residents move to lower-tax states.
The evidence certainly is there. For years, the populations of high-tax states have been shrinking while low-tax states have been gaining residents.
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But that’s just correlation. Are people really leaving the high-tax states because the taxes are so high?
And are the people leaving high-tax states the same people who pay the highest tax rates?
This is where the “proof” gets murky.
We know many wealthy people have not fled New York, California, and other high-tax places, and don’t intend to, so apparently, there are reasons to stay.
Photo: Getty Images
Rooted Millionaires
In his 2017 book, The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich, Stanford University sociologist Cristobal Young questioned whether wealthy people are really so mobile.
Young’s research, based on 13 years of tax data for every US millionaire, says the opposite is more accurate. Only about 2.5% of millionaires moved to new states each year, and not all went to lower-tax states.
One reason is that millionaires tend to be older people with deep roots in their communities. They have family and business ties. They like living where they do.
Yet clearly, somebody has been moving. Who is it?
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Answer: mostly young people, particularly recent college graduates. They are four times as likely as millionaires to move in any given year, and taxes aren’t the reason. They follow job and educational opportunities.
Now, you can certainly argue with Young’s data. Even if he’s right, he may not remain so. Technology is slowly breaking the ties between residence, work, and family. I think that trend will continue.
The broader point: This obvious “fact”—high taxes drive out wealthy people—really isn’t so iron-clad, once you look closer.
But you won’t know that unless you see the other side… which is hard because we’re all surrounded by oceans of conflicting data.
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Multiple Sources
No one I know is more overloaded with information than John Mauldin. I’ve seen his computer screen, and the inbox is always jammed. Mine looks a little better, but not by much.
(Funny thing is, it was John who bought me my very first PC, back when I worked for him part-time in 1988. We had no email then. Now we blast words at each other all day long.)
Anyway, we get a lot of super-interesting stuff. John has an amazing list of contacts who send him a steady stream of economic analysis. I am in the unique position of being both on that list and a top beneficiary of it.
- I monitor some sources John doesn’t and send him things he needs to know.
- John shows me a lot of analysis he gets from other contacts around the world.
A small part of that data finds its way into Thoughts from the Frontline and Connecting the Dots. We can only include so much. But if you want more, we have a way you can get it.
Recently, John made me the co-editor of his Over My Shoulder service, in which we share even more of our data trove—carefully filtered to keep subscribers informed but not overloaded. Over My Shoulder is a great service at a very reasonable price. Click here to learn more.
This brings up an important announcement.
Putting myself in front of this firehose means we’ve had to rearrange some of my work. I’ll keep writing Connecting the Dots, but after today it will be on the Mauldin Economics website instead of in your inbox. You can bookmark this page to always find my latest musings.
I’ll also keep writing for Forbes and a few other sites. And of course, you can always follow me on Twitter.
But Over My Shoulder is my focus now, so please check it out. Subscribing will be the best way to keep up with both my macro thoughts and the fascinating work of some of the world’s finest thinkers.
See you at the top,
Patrick Watson
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