This
book reminds me of Elizabeth Warren’s book, The
Two Income Trap, as both are short (under 200 pages) and make one coherent
argument about economics that I am predisposed to agree with. I should probably
be more skeptical of this book as I went in looking for evidence of something
that I already believed (that the government should return taxes on
millionaires to older, higher levels) and that is a recipe for uncritical
analysis. But whatever, I liked the book a lot and I found the arguments put
forth to be very compelling
The
critical point of the book is that place is more important than ever for
millionaires. Although many on both ends of the argument for higher taxes on
the rich seem to believe that the rich are extremely mobile and can move
wherever they want, that is a misconception. The extremely wealthy can
certainly travel wherever they want, and they do so. Bill Gates may go to Switzerland,
Swaziland, and Seattle all in a month. However, he chooses to live in Seattle.
This is because he is what Young calls an “embedded elite.” If Gates leaves
Seattle, he leaves the headquarters of his business. If he leaves the United
States, he leaves the country where most of his connections and clients are. If
he leaves the Western and English-speaking world, he loses most of his ability
to communicate with and be understood by others. He is an embedded elite. In
fact, those who are most likely to migrate to another state or country are
those who are poorer, or at the beginning of their careers. The poor move
across borders to gain access to better jobs, as a fry cook at McDonald’s in
the USA can make six times more doing the same job as a fry cook in an Indian
McDonald’s. Younger people also tend to move as they are less tied down to
family obligations with a spouse and children. Millionaires are also more
likely to be married (90% of millionaires vs 58% of general tax filers) so that
adds yet another barrier to moving, as one now needs the approval of a spouse
to migrate.
In his
statistical analysis, the author finds that the very wealthy in the United
States are no more likely to live in a low-tax state than a high-tax state.
Think of it this way- California and New York are very high tax states. If you
are rich, it would make sense to move to a low-tax state- however, if you’re an
actor, you probably need to live in Los Angeles. If you’re a Wall Street
banker, you probably need to live in New York. Telecommuting just isn’t the
same, and it’s likely that the connections you have in your social and
professional life are concentrated in one city. When they author did an
analysis of where the rich are likely to live in the United States, there was
absolutely no correlation between wealthy population and a low state income
tax.
The
overall millionaire migration rate is very low at just 2.4 percent and of these
moves, just 15 percent achieve a tax advantage. That means that just “0.3
percent of millionaires, on balance, shifted to a lower tax state.” More than
all of this is accounted for by Florida, where 20% of top income earners are
moving to, with about 10% leaving. Florida may be attractive for its low income
taxes, but is also very attractive due to its beaches, climate, and amenities
(air conditioning included). Because of its low tax levels, Floridian poor pay
about 12 percent of their income in taxes while the rich pay only 2 percent. Generally,
when a millionaire or a billionaire lives in a place that is not of their
birth, it is also not of their choice. They relocated by decision of their
parents when they were a child or to pursue a career when they were young
enough not to be tied down to social obligations. When it comes to
billionaires, slightly more move at 5%, however 7% also die in the same time
period, meaning that a billionaire is more likely to die than to change his or
her place of residence.
The
author also addresses offshoring of money, meaning that the ultra-wealthy would
not change their primary address but would rather change the primary address of
their money using accounting and legal tricks. This is apparently not as
advantageous as it would seem. It does a lot for secrecy, however, moving money
through a shell corporation does little for wealthy people unless they’re
trying to avoid a wealth tax. When it comes to income taxes, usually that
wealth has already been taxed before they have hidden it. 8% of global wealth
is hidden offshore, which seems alike a lot and a little at the same time to
me.
To
conclude, I’m very glad to have read this book because it’s given me empirical
backing for an argument I find to be true, which is that the rich are paying
historically low taxes and that it is Bad. The author writes that “The central
finding of this book is that while millionaire migration and millionaire tax
flight certainly occur, they are happening at the margins of social and
economic significance.” The idea that we can’t raise taxes on the rich because
they’ll just leave the country is based on anecdotal evidence and not on fact.
The main reason we don’t do it is because of cowardly politicians who are often
in the pocket of those very same extremely wealthy people. I think that the
very wealthy are bluffing when they say that they would leave the countries
that made them rich and that the American people should call their bluff.
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