Billionaires Are Starting to Leave States With Hefty Estate Taxes, According to a New Study

Tori Latham
·2 min read
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Some states may be losing their ultra-high-net-worth population thanks to taxes, according to a new study.

In a paper published in the May issue of the American Economic Journal: Economic Policy, as reported by Bloomberg, the super-rich are more likely to leave states with estate taxes for those without them as they get older. That trend is particularly acute in states that also implement an income tax on top of those estate taxes.

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“What we’re saying is you can either be progressive on income tax or be progressive on adopting an estate tax, but if you do both it’s going to backfire,” Enrico Moretti, an economist who worked on the study, told Bloomberg.

These estate taxes can particularly affect Democratic-led states, which are more likely to have above-average income-tax rates. Republican-led states, meanwhile, tend to have lower income taxes or none at all, meaning “there is virtually no cost to adopting an estate tax,” Moretti said.

To reach their conclusions, Moretti and Daniel Wilson, his research partner on the study, looked at hundreds of billionaires, analyzing their behavior starting after 2001, when a federal credit was repealed and estate taxes become more costly. By 2010, more than 21 percent of the billionaires had moved to states without an estate tax, while barely any moved into estate-tax states. (Currently, only 12 states have estate taxes, and most of them place a 16 percent tax on large fortunes at death, Bloomberg noted.)

Still, despite these data, billionaires tend to favor states that are on board with taxing the rich. California and New York, for example, have more than twice as many of the top billionaires as Texas and Florida, Bloomberg wrote—California has 44 of the world’s 500 richest people, New York has 30, Texas has 24, and Florida has just eight.

Meanwhile, Washington, which has an estate tax of 20 percent—the highest rate in the nation—is the most cost-effective of all states with such a tax. Even if some billionaires were to move away because of that high number, the taxes on the remaining UHNWIs would make up for any lost revenue (the state currently has no tax on regular income). While that may not attract any extra billionaires to the Evergreen State, it leaves Washington in a pretty solid position.

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