What really happens to the ultra-rich when states and localities increase taxes?
Every time a state proposes a millionaire tax, someone predicts an exodus.
In 2004, New Jersey adopted a new tax bracket on million-dollar incomes. Critics immediately warned that wealthy residents would leave. Since then, similar predictions have accompanied nearly every proposal to raise taxes on top earners. When California debated a millionaire tax, opponents argued that "there's nothing more portable than a millionaire and his money." When Oregon considered a similar measure, Nike founder Phil Knight warned of a "death spiral" in which "thousands of our most successful residents will leave the state." During New York City's 2025 mayoral campaign, hedge fund billionaire Bill Ackman warned that wealthy residents would flee if Zohran Mamdani won and succeeded in raising New York City's income tax surcharge on incomes over $1 million by two percentage points.
These warnings carry weight. In places that tax the rich, high-income taxpayers generate a large share of state and local revenue, making them valuable residents. But taxes on the rich also give them a reason to leave. If enough do, governments can face budget shortfalls and pressure to cut services.
Top tax rates in New York City and California are now 13 to 14 percentage points higher than they are in Florida and Texas. Wealthy households have a great deal of freedom to choose where they live. They can afford to move. They employ accountants and financial advisers who know exactly where taxes are lower. If anyone should respond to tax incentives, it ought to be them.
This intuition lies at the heart of the classic economic theory of tax competition. If wealthy households can relocate to lower-tax jurisdictions, states that raise taxes on top earners will lose residents and revenue. Millionaire taxes become self-defeating, shrinking the very tax base they were designed to tap. Governments will eventually learn the lesson: don't tax the rich. Over time, competition for affluent residents pushes tax rates steadily downward in a race to the bottom.
The problem is that the race to the bottom never arrived.
I have been studying millionaire tax flight for nearly 20 years. My colleagues and I have analyzed millionaire tax reforms in New Jersey and California, decades of IRS records tracking where Americans with million-dollar incomes actually live, the migration of Forbes billionaires and most recently the effects of the 2017 Trump Tax bill and the COVID-19 pandemic. The popular image of the “mobile millionaire,” constantly searching for the lowest-tax location, unravels under close inspection. Top earners often travel, but they rarely change where they live. More often, they are deeply rooted – and powerful insiders – in the places where they built their careers and businesses and raised their families. It is not so easy to walk away from these kinds of relationships.
Migration in America is concentrated among the young and the struggling, not the rich. Roughly 4.5% of low-wage workers - those earning less than $10,000 - move each year, often chasing jobs or affordable housing. Millionaires move at about half that rate, just 2.4% annually. They are not searching for their economic place in the world; they've already found it.
More than anything, migration is a young person's game. Recent college graduates move across state lines at rates exceeding 12% annually, roughly five times the rate of millionaires. But their migration drops off fast: by the time they reach their peak earning years, college graduates display the same low migration rates as most other Americans. The implication is important: people typically settle on where to build their lives decades before they ever enter the top tax brackets.
This does not mean taxes are irrelevant. When millionaires move - which is rare - they are more likely to relocate to lower-tax states than to higher-tax states. In the tax return data I examine, covering roughly 1999 through 2023, about 47% of millionaire moves were to states with lower income taxes than the states they left. But one-third were to states with higher income taxes, while another 21% were between states with essentially the same tax rates. These moves clearly cannot be explained by tax avoidance. People relocate for jobs, family, retirement, climate and countless other reasons. LeBron James, for example, roughly doubled his state tax bill when he moved from Ohio and the Cavs to California and the Lakers.
New York illustrates the same point. Florida is the most common destination for New York movers overall. But among the richest 1% of New Yorkers, the most common destinations are Connecticut, New Jersey and California, all of which levy millionaire taxes. The richest New Yorkers are not simply decamping to the lowest-tax state available. Many are moving within the same high-cost, high-tax professional region. These moves are not really about taxes.
The strongest evidence that taxes influence migration comes from Florida. It attracts millionaires on net from nearly every state in the country - mostly from high-tax states such as New York and New Jersey, but also from low-tax states such as Texas and Tennessee. The only states that do not lose at least some millionaires to Florida are Arizona and South Carolina, two other major retirement destinations.
Florida also illustrates the limits of the tax-flight story. Nine U.S. states levy no income tax, but Florida is the only one that consistently attracts affluent migrants from across the country. If taxes were the primary driver, we would expect Texas, New Hampshire, Tennessee and the other no-tax states to attract similar millionaire flows. They do not. In fact, each of those states experiences a net loss of millionaires to Florida. Florida's success reflects a broader package of amenities, including climate, retirement communities and lifestyle advantages. Even the nation's clearest case of tax-motivated migration owes much - though not all - of its appeal to factors other than taxes.
Taken together, the directional pattern is clear but limited. Millionaire movers are more likely to move to lower-tax states than to higher-tax states: 47% compared with 32%. That 15-point gap provides a rough measure of the net excess movement toward lower-tax places. More technical analysis points in the same direction, suggesting that about one in seven millionaire moves are tax-motivated migration.
But that is one in seven millionaire movers, not one in seven millionaires. Millionaires themselves rarely move. Once we combine the modest tax tilt among movers with the low overall rate of millionaire migration, tax-motivated migration becomes a small slice of a small slice: 0.3% of the millionaire population moves for tax-purposes each year. It’s not zero, but looks nothing like the exodus often described in political debates.
Why aren’t millionaires more mobile?
The problem with the tax competition story is that it mistakes freedom of movement for a willingness to move. Most millionaires are the late-career working rich. By the time they reach the top tax brackets, they have careers, businesses, reputations, colleagues, collaborators and networks in place. Much of what makes their lives work would not travel with them. Their very success in one place makes other places less appealing. Elsewhere, they would be less known, less connected and less central.
Tax competition theory treats people and their paychecks as movable while ignoring how place helps produce success. Places like New York, Boston and Silicon Valley concentrate talent, capital, information, clients, investors, employees and opportunity in unusually productive ways. A wealthy New Yorker can move to Florida and lower a tax bill. But for someone who is already a powerful insider, taking their chips somewhere else often means giving up their seat at the table.
A missing race to the bottom
Critics of tax policies in New York and California often focus on competition from Texas and Florida. Yet the larger reality is that states compete most directly with their nearest neighbors. Most interstate moves, even among millionaires, are relatively short-distance moves to nearby states.
A key prediction of the tax-flight story is not just that some wealthy households will leave. It is that other states will benefit from their departure. If New Jersey adopts a millionaire tax that drives away affluent residents, neighboring states gain those taxpayers for free. In this sense, tax competition is a zero-sum game: One state's loss becomes another state's gain.
New Jersey adopted the nation's first modern millionaire tax in 2004, adding 2.4 percentage points to the top rate - slightly more than Mamdani's proposal. Five years later, voters elected Chris Christie after a campaign in which the tax was fiercely debated. Yet the millionaire tax survived and was eventually expanded. Rather than serving as a cautionary tale, New Jersey became a model that neighboring states increasingly followed.
Washington, D.C. adopted a new high-income bracket in 2008. New York and Connecticut raised taxes on top earners in 2009. Massachusetts voters approved a millionaire surtax in 2022. Maryland created new top brackets in 2025, and Maine soon followed with its own millionaire tax.
The West Coast followed a similar path. California enacted a millionaire tax in 2004, expanded it through a statewide referendum in 2012 and made the increase permanent in 2016. Oregon voters approved a millionaire tax in 2010. Washington State, long known for having no income tax at all, adopted a tax on high-income capital gains in 2021 and enacted a millionaire tax in 2026.
This is not a race to the bottom. It is a story of policy diffusion. State after state had an opportunity to observe the consequences of millionaire taxes in neighboring jurisdictions. If large numbers of the rich had fled, nearby states would have gained from their neighbors' losses, drawing in exile taxpayers. Instead, they waited, watched and most concluded that millionaire taxes were something to emulate. Rather than soaking up the spoils of tax competition, other states realized they were missing out on millionaire tax revenues.
The political lesson is striking. The prediction was "tax the rich and they will leave." The reality was closer to "tax the rich and your neighbors will copy you."
When tax flight happened
Two recent events showed why the rich generally stay where they built their careers – and what it takes to actually change their minds and make them search for greener pastures.
The first was the 2017 Trump tax bill, which capped the federal deduction for state and local taxes. For top earners in places like New York and California, this amounted to a considerable tax increase, with the money used to fund tax cuts for millionaires elsewhere. Many commentators, including the governors of New York and California, predicted fiscal chaos from millionaire flight. A widely shared Wall Street Journal op-ed, titled “So Long, California. Sayonara, New York,” predicted that 800,000 people a year would leave these states.
My colleague and I used deidentified IRS tax returns to track every millionaire taxpayer in the country for two years before and after the reform. The exodus never materialized. Out-migration from high-tax states did not increase at all. We were preparing to write up the results as a null finding when something changed dramatically. The pandemic came, and millionaire tax flight arrived with it.
The pandemic brought a profound shock to social embeddedness. Workplaces emptied out, with office-building entry swipes in major cities falling by nearly 90 percent. Local amenities were shuttered, and time spent alone increased. Schools closed, disrupting children's relationships with teachers and classmates. For many families, school closures also eliminated one of the biggest barriers to moving: taking children out of school. For many households, the pandemic created a strange form of freedom: a chance to rethink where to live and work, especially for top earners who could work remotely from almost anywhere.
Disconnected from many of the ties that anchor people to place, top earners left high-tax states in historically large numbers and disproportionately chose lower-tax destinations. So millionaire flight did indeed happen at a larger scale for a relatively brief period — but it took a force larger than taxes alone to dislodge people from their longtime homes.
Tax differences across states create real financial incentives to move. But in normal times those incentives compete with careers, friendships, schools, business relationships and community ties that are rooted in particular places. For most affluent households, tax savings alone are not enough to overcome those attachments.
During the pandemic, many of those attachments weakened simultaneously. The financial incentives to relocate had always been there, but they suddenly mattered more because there was less tying people to place. Yet the effect proved temporary. As the pandemic receded and normal patterns of work and social life resumed, millionaire migration returned toward its pre-pandemic baseline. By 2023, migration rates had largely normalized.
What the City should do instead
Every state and city wants more top taxpayers. Many assume the way to get them is to keep taxes on the rich low. But in normal times, wealthy households are far less mobile than policymakers imagine. Many states today forgo substantial revenue in hopes of migration flows that never materialize.
Places should focus less on courting millionaires and more on cultivating and retaining highly educated young people. Recent college graduates are among the most mobile people in the country. They are the pipeline for the millionaires and top taxpayers of 2045. These young workers are not choosing where to live based on the tax rates paid by those at the very top. They're looking for places where they can afford the rent, find good work, build a social life, meet a partner and eventually raise a family. If they achieve their highest economic aspirations, one day they will be paying the highest tax rates. For now, they need the basics of opportunity to be within reach. Soon they'll need affordable child care and good schools.
A city that delivers on those needs builds its own pipeline of future top earners. The way to keep the rich in New York isn't to coddle today's millionaires. It's to make sure today's strivers can afford to stay.
