Billionaire Ken Fisher’s money-management firm announced last month that it was moving to Texas from Washington state, the latest example of a tycoon loudly departing a blue state for a red one. Fisher chalked the decision up to taxes, but in reality such moves often have more to do with lifestyle choices and political optics than money. Fisher’s grandstanding makes that clear.
The move comes with a new twist on the typical “tycoon tax migration” narrative. Washington is itself among the handful of zero-income tax states. In a shift, the state legislature — under the control of Democrats — approved a new 7% capital gains tax in 2021 targeting investment profits greater than $250,000. But implementation had been stalled until a 7-2 ruling last month in the state Supreme Court appeared to put an end to the pending legal challenges.
Fisher, a prominent Republican donor, wasted no time in going after the ruling. Here’s the 35-word press release from his firm:
In honor of the Washington State Supreme Court’s wisdom and knowledge of the law, and in recognition of whatever it may do next, Fisher Investments is immediately moving its headquarters from Washington State to Texas.
Aside from being petulant, the statement is also misleading. Fisher, with some $197 billion in assets managed globally, already had a large office in Plano, Texas, with more than 1,000 employees. Naj Srinivas, a communications official for the firm, told Bloomberg’s Shelly Hagan and Suzanne Woolley that the company would keep the Camas, Washington, office, which has about 1,800 employees, but focus new hiring on Texas. For his part, Fisher (the man), 72, already owns a residence in the area and has a history of lavishly supporting Republican political causes in the Lone Star State. In practice, the announcement doesn’t change much.
Of course, those details won’t stop the spread of Fisher’s story as a hook for the tax migration narrative. Propagators of the story want local politicians to conclude that there’s a high price to be paid for trying to raise taxes on the rich. They use anecdotes like Fisher’s to argue that Northern blue states need to slash their tax rates or end up with gaping holes in their budgets. The truth is far more nuanced, and policymakers need to be careful not to fall for the oversimplification.
In practice, most ultra-wealthy people — setting aside those driven by political vendettas and free publicity — weigh tax considerations carefully against the costs of moving away from the social and business ecosystems that made them rich in the first place. Moving also means uprooting spouses and finding new elite private schools for children. Researcher Cristobal Young, a professor of sociology at Cornell University, says that “embeddedness” can be a powerful offset to the financial incentives for tax migration, a case he makes at length in "The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich."
The wealthy don’t need to bother with the hassle of moving just to maximize their earnings; they’re already rich. In the data, millionaires — here defined as those making $1 million or more a year — move around with less regularity than the poor, and until the pandemic, their migration patterns had been relatively stable. When they do move to low-tax states, it’s often because they provide desirable amenities like warm climates, beaches and nice golf courses. Notice that these conversations always center on Florida and Texas and never, for instance, zero-tax Alaska — underscoring how this is not purely a financial phenomenon.
No doubt, the pandemic changed matters in ways that are still imperfectly understood, especially with the proliferation of fully remote and hybrid work. In a review of Internal Revenue Service data, Cornell’s Young and the US Treasury Department’s Ithai Lurie found that the highest tax states lost about 0.5% of their top earners (again, those making $1 million and up) during the pandemic to tax flight. Blue-state optimists might read those numbers in a positive light: Even during the most disruptive event of our lifetimes, the permanent relocation of the rich to low-tax jurisdictions was relatively small. But it was still statistically meaningful, and pessimists have reason to worry that the pandemic unleashed a trend that could continue or even accelerate. Certainly, this is no time for blue states to rest on their laurels as Florida and Texas push ahead with the development of increasingly dynamic communities and business centers.
At the same time, state policymakers shouldn’t allow themselves to be bullied out of pursuing more equitable tax policies over — so far — hyperbolic migration fears. Here’s how Young and Lurie described the path forward in their paper “Taxing the Rich: How Incentives and Embeddedness Shape Millionaire Tax Flight”:
Policymakers often assume by default that the way for a place to be "competitive" is to be like Texas: a low-tax, low-infrastructure, low-services state. Lower costs and lower taxes are always attractive in the short run. Yet, if tax dollars are invested in ways that ultimately improve quality of life, then provision of high-quality public goods and services is a rival and potent pathway to competitiveness.
Indeed, the best way to retain billionaires is to build incredible states where people thrive in their work and personal lives. With a world of options, few billionaires are single-minded enough to make their residency decisions based on tax status. Some, of course, may be driven away by politics and spite, but there was never much hope of retaining those billionaires anyway.
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ABOUT THE WRITER
Jonathan Levin has worked as a Bloomberg journalist in Latin America and the U.S., covering finance, markets and M&A. Most recently, he has served as the company's Miami bureau chief. He is a CFA charterholder.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
