Research led by Cornell University reveals that a sense of community outweighs financial incentives, such as tax breaks, when high-income earners decide where to live. This conclusion emerged from a study involving nearly 4 million high-income tax filings over a seven-year period, examining behaviors before and after significant tax reforms and the onset of the COVID-19 pandemic.
According to the study, published in the *American Journal of Sociology*, the 2017 Tax Cuts and Jobs Act (TCJA) did not lead to the mass migration of wealthy individuals from high-tax states like New York and California to states like Florida and Texas, which impose no income tax. “The Trump tax bill made the differences in taxes between states larger than we’ve ever seen,” said Cristobal Young, associate professor of sociology and co-author of the study. “What we saw from that was essentially zero migration.”
The research leveraged a natural experiment created by the TCJA and the pandemic, which drastically altered people’s everyday lives. Young and co-author Ithai Lurie, a financial economist with the United States Department of the Treasury, analyzed tax filings from individuals earning at least $1 million annually. Their findings indicated that pandemic-related disruptions were more significant in influencing relocation decisions than changes in tax law.
The TCJA introduced a cap on the deduction for state and local taxes, increasing the federal tax burden for residents of high-tax areas. Many state governors anticipated this would trigger a wave of high-income earners relocating to states with lower taxes. However, Young’s analysis shows that the anticipated migration did not materialize. “Essentially, the Trump tax bill figured out a way to raise taxes on rich people in blue states,” he added.
The pandemic fundamentally altered social dynamics, making remote work the norm and reducing the appeal of familiar local amenities. “The pandemic took away a lot of the things that tie people to place,” Young noted. With the rise of technologies like Zoom, maintaining long-distance connections became easier, further diminishing the urgency to relocate for financial reasons.
In the early stages of the pandemic, New York City experienced a notable spike in out-migration, with rates five times higher than before. Conversely, cities like Houston, Texas, saw a decrease in out-migration during the same period. This pattern suggests that while financial incentives exist, they do not always translate into action, a phenomenon the authors refer to as “muted incentives.”
The research found that despite the potential for significant tax savings, few high earners made the move to lower-tax states. Young emphasized this point, stating that the social ties and connections formed over years often outweigh financial considerations. “If you’re going to move for tax purposes, you have to think realistically about what you’re giving up,” he said.
The study highlights how personal connections and community ties play a crucial role in decision-making, even for the wealthiest individuals. Young’s previous work, “The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich,” published in 2017, also supports this idea, challenging the notion that high-income earners will flee high-tax states at the first opportunity.
This research was supported by the Washington Center for Equitable Growth, the Russell Sage Foundation, and the Cornell Center for Social Sciences. The findings provide valuable insights into the motivations behind residential choices among high earners, suggesting that emotional and social factors often outweigh purely financial considerations.
