Capital Is Mobile

"In 2004 New Jersey was one of the first states to adopt a 'millionaires' tax, imposing an 8.97% rate on income over a half-million dollars," Forbes reports. The consequence? "In all, the state suffered a $70 billion net outflow in wealth from 2004 through 2008, compared with a $98 billion net inflow in the prior five years. The Garden State's reversal in fortune was due to a large drop in the number of wealthy households entering the state and a moderate increase in the number of wealthy households leaving." The Forbes article is based on a study (pdf) conducted by Boston College's Center on Wealth and Philanthropy for the Community Foundation of New Jersey and the Enterprise Trust at the New Jersey State Chamber of Commerce. There's an estate tax angle, too — New Jersey has a particularly fierce death tax. It's harder to flee America than it is to move to Pennsylvania or Florida from New Jersey. But the basic insights — that capital is mobile and that taxes affect behavior — apply at the national level just as they do in the laboratory of the states.