A closer look at where Rhode Island’s wealthy taxpayers go

February 4th, 2014 at 1:22 pm by under Nesi's Notes, On the Main Site

As the Projo reported this morning, Paul Dion and Bethany Scanlon of Rhode Island’s Office of Revenue Analysis recently published a study [pdf] examining the actions of wealthy state taxpayers from 2007 to 2011 – always a subject of debate and discussion locally.

I emailed Dion and asked him to break down some of the paper’s most interesting points for Nesi’s Notes readers. Here’s his response, lightly edited for clarity – and augmented with charts! Here’s what he said:

Dion_tax_study_3

A couple of interesting things come out of the study, some technical, some observational.

On the technical side, I was surprised, but probably shouldn’t have been, that there were so many possible paths that a taxpayer could follow after filing a TY [tax year] 2007 Rhode Island resident return with federal AGI [adjusted gross income] of $200,000 or more. A [total of] 121 possible outcomes was more than I thought would be the case. Granted many of those cells are empty but still 121 possible outcomes was more than I expected initially. [This chart shows what he means.]

Dion_tax_study_1

On the observational side, a couple of things pop out.

First, 86.5% of the RI resident tax filers with federal AGI of $200,000 or more in TY 2007 continued to file RI resident tax returns in each of the tax years 2008 through 2011. That is pretty high, especially when you consider the fact that the state is 30 miles-by-40 miles and one can easily move to a bordering community in MA or CT and still have the same lifestyle one has in RI (i.e., access to entertainment, restaurants, employment, etc.).

Second, the volatility in the income ladder was more than I expected.

For example, 27.8% of the TY 2007 RI resident filers with federal AGI of $200,000 or more filed RI resident returns in TY 2008 with federal AGI below $200,000. Similarly for TY 2009 vis-a-vis TY 2008 it was 36%, TY 2010 vis-a-vis TY 2009 it was 34.8% and finally for TY 2011 vis-a-vis TY 2010 it was 35.1%. Basically, more than a third of wealthy RI residents appear to turn over every year. I guess it might be true that one-fifth of the population is wealthy at one point in their life.

Dion_tax_study_4

Third, I was mildly surprised that the number of “Movers” (taxpayers who file a non-resident return the year immediately after filing a resident return) was on par with “Goners” (those who stop filing any RI tax return immediately after filing a RI resident tax return). From the rhetoric you hear about the wealthy fleeing RI, I found it interesting that nearly an equal number retain financial ties with RI as those who completely sever ties with RI.

Dion_tax_study_5

Fourth, within the Movers category, MA as a destination and FL as a destination were pretty close percentage-wise, as were the below-$200,000 and the $200,000-to-$500,000 of federal AGI groups. Clearly, Movers were a bit older when you look at the age categories. As for Goners, the largest percentage was in the $200,000-to-$500,000 AGI category and was skewed younger than the Movers. This indicates to me that this group is likely comprised of executive-level professionals who relocate because of a new job.

Fifth, within the category of “Faders” (those taxpayers who filed a RI non-resident return immediately after filing a RI resident return and immediately before no longer filing any RI tax return), the interim relocation destination was spread all over the place, although FL and MA still had substantive percentages as individual states. The Faders cohort was skewed to the below-$200,000 and $200,000-to-$500,000 federal AGI amounts but the age demographic showed a substantially higher percentage for 65-and-above than the Goners classification.

Sixth, when looking at the intersection between AGI and relocation destination, the positive correlation between FL and AGI of $500,000-and-above for Movers was striking. The percentage of total Movers with AGI above $500,000 that relocated to FL was twice that of Movers with AGI above $500,000 that relocated to MA. That is significant.

In the other two AGI categories, the correlation between AGI and relocation destination was more uniformly distributed. For Faders, FL does not even register as an interim relocation destination for AGI of above $500,000 (nor did MA). For AGI below $200,000, however, FL had the highest percentage of Faders.

Finally, when looking at the intersection between age and relocation destination, the positive correlation between FL and 65-and-above for Movers was striking. The percentage of total Movers aged 65 and above that relocated to FL was nearly four times that of Movers aged 65 and above that relocated to MA. That is significant.

In the under-45 and 45-to-54 age categories, the percentage of Movers that relocated to MA was highest. In the 55-to-64 age category, FL overtakes MA for Movers but other regions of the country also become more prominent. For Faders, a positive correlation between age category and FL as an interim relocation destination is exhibited but several other areas of the country gain prominence. For Faders, although MA does pick up a recognizable percentage of Faders based on age, MA typically falls behind other areas of the country.

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9 Responses to “A closer look at where Rhode Island’s wealthy taxpayers go”

  1. Patrick Crowley says:

    It’s never really been a debate. The facts have always been on the side of folks who have said that the Flight of the Earls is a myth. but again and again, certain well funded or well positioned voices keep arguing that, despite the evidence, they know it’s true.

    It’s makes me wonder….what ELSE have they been wrong about?

    1. Tom says:

      This report does not say people are NOT moving out. It makes very clear that they are – clearly more than move in. Don’t our Census #s agree? It looks like if you make good money and are old you are moving to FL. Is this a surprise? FL has no estate tax and limits growth on property taxes for seniors.

    2. Bill says:

      The report clearly indicates that they are decreasing. In 2007, the number of $200k+ filers is 14,601. In 2011, it is 12,629. Just looking at that number alone summarizes the whole issue. Sure, some people are dying. Some people are moving in or out. Some people are dropping below or moving above the $200k income threshold. The real point, though, is that we have a net decrease of 400-600 people with high incomes every year. Hey, I know, if we raise the minimum wage to $100/hour, everyone will make more than $200k per year!

  2. Tom says:

    Exactly, Bill. I think Mr. Crowley doesn’t want to see what’s going on. He probably works for some advocacy group pushing for more taxes.

  3. charles r says:

    The middle class, the college and high school grads are leaving,,, no jobs. The retired are leaving ,,,,taxes. There are many places in the US that seniors do not pay the school tax, which is about 75% of our real estate tax bill. States that do not have income taxes. Why would a retired person stay in RI, chances are that their children and grand children are moving out of state. So why hang around. Our state and local elected officials do not have a clue. That’s what happens when the unions run the operation.

  4. George says:

    Patrick Crowley how can you look at the numbers and not see a problem. 5,566 fewer taxpayers in the $200k-$500k group in just 4 years. If they were business executives moving for work, their jobs would need to be replaced resulting in no change. How can anyone think RI isn’t in big trouble.

  5. [...] A closer look at where RI’s wealthy taxpayers go [...]

  6. Ryan says:

    Some of you are not understanding the data correctly. 86.5% (12,629 of 14,601) of the $200,000 filers from 2007 were still filing in the state by 2011. That doesn’t meant that the number of $200,000 filers in 2011 was down by roughly 2,000. It means that among those who were already here in 2007, the number is down by 2,000. In other words, it’s not accounting for any new high-earners that moved into the state during that time or people already living in RI that earned raises to above $200,000 after 2007.

    1. Ryan says:

      If you take the 86.5% that were still around by 2011 and add in new high-earners (either people that moved into the state or RIers earning more in 2011 than they were in 2007), there are probably around the same number of taxpayers paying above $200,000 per year in 2011 as there was in 2007. Considering the hit that the economy took in between those two years that’s pretty remarkable. Even if there is a small net loss in taxpayers making over $200,000 from 2007 to 2011, it certainly isn’t large enough to suggest that we should be making big policy changes based on the data.