According to the Empire Center research organization, over 1.5 million more people moved out of New York State in the past decade than moved in — a larger net loss than for any other state. Like Jeter, people moving out tend to earn higher incomes than people moving in. Again, like Jeter, most of the people who leave had lived in the New York City area — not in the economically depressed upstate regions. And finally, like Jeter, almost a third of outmigrants settle in Florida.
Two months ago, basketball superstar LeBron James made a similar decision. He decided to leave his team, the Cleveland Cavaliers, to play in Florida for the Miami Heat. People debated this decision from the perspective of James’s loyalty to his hometown team while forgetting that there were financial considerations, too. Ohio State University economist Richard Vedder noted how taxes probably figured in his decision: James was expected to make $100 million with a five-year contract in Miami, and because Florida doesn’t have an income tax, the estimated net present value of his tax savings is between $6 million and $8 million.
These cases offer a reminder of the futility of trying to soak the rich — something President Obama wants to do by letting the Bush tax cuts expire for high-income earners. These people typically have skills that are in demand around the country and often around the world. They can live practically anywhere without impairing their ability to earn a lot of money. And so they will move somewhere else that is glad to leave their bank accounts alone.
For example, Scottish actor Sean Connery lives in the Bahamas; English actor Roger Moore and English retailing entrepreneur Philip Green reside in Monaco, and American singer Tina Turner, Canadian singer Shania Twain, English singer David Bowie, German tennis star Boris Becker, German racing car driver Michael Schumacher and American businessmen — and former New York residents — Leonard and Ronald Lauder live in Switzerland. The Rolling Stones channel most of their royalty income through a Dutch company and carefully limit time spent in Britain because of taxes.
Moreover, capital can be transferred offshore electronically faster than you can say “higher taxes.” According to the Commerce Department’s Bureau of Economic Analysis, U.S. citizens and U.S.-based multinational corporations hold $18 trillion of assets offshore. Politicians complain some of that capital should be brought home to fund jobs in America, but if that happened, the IRS would impose a 35% tax, so the capital stays offshore.
The soak-the-rich issue involves some practical questions. Who’s more likely to create jobs — a rich person or a poor person? Who’s more likely to provide investment capital? Who’s more likely to serve as a lead donor for fund-raising? Do you really believe you’ll be better off by driving rich people somewhere else? If so, don’t expect to see Derek Jeter strolling through Central Park anytime soon.