Rhode Island’s Income Flees to Florida

As a follow-up to my previous blog on Rhode Island’s Taxpayer Fleeing the State, the chart below shows the gross in- and out-migration of income from Rhode Island to Florida.  Naturally, there are critics of the study, but no one has yet to address this smoking gun.  If the estate tax has nothing to do with the out-migration of income to Florida, then what explains the sudden surge in 2004?  Did the weather suddenly get better in Florida or worse in Rhode Island?

Rhode Island Income Flees to Florida

Taxes Matter VII: Rhode Island Taxpayers Flee State

Yesterday the Ocean State Policy Research Institute released my study on the migration of people and income out of Rhode Island: “Leaving Rhode Island: Policy Lessons from Rhode Island’s Exodus of People and Money.” (pdf) Here is the excellent cover art followed by the Press Release.

Cover Art for Leaving Rhode Island Migration Study

The Ocean State Policy Research Institute (OSPRI) released today its “Leaving Rhode Island” study, documenting the people and wealth that are leaving the state due to out-migration.

A Press Conference will be held today (January 20), at 2:00 pm at the RI State House Rotunda, to discuss the study. Speakers will include Alan Hassenfeld; Bill Felkner, J. Scott Moody (Fellow on Economic Policy), and Mike Stenhouse.

The study, which is based on actual figures from IRS and US Census data, and which can be downloaded from the OSPRI website at www.OceanStatePolicy.org/leavingri.html, paints a grim picture of how Rhode Island’s oppressive tax structure is driving both human and capital resources out of the state. Among the specific findings:

  • Rhodes Island lost a net of 107,086 residents to other states between 1991 and 2009, or about one in ten current residents.
  • Between 1995 and 2007, total net income (in-migration minus out-migration) leaving the state averaged $78,468,000 every year translating into a total loss of over $1 billion.
  • If the annual income loss is compounded over the thirteen years examined in this study, the state has cumulatively lost $4.6 billion.
  • Had this income stayed in Rhode Island, an additional $540 million would have been collected in state and local taxes.
  • Of the seven variables examined, the Estate Tax is the most influential to where people and wealth migrate.

“Virtually all of my wealthy friends and fellow philanthropists have moved their residencies out of RI,” said Alan Hassenfeld, whose Hassenfeld Family Initiatives foundation commissioned the OSPRI study. “This loss of income to our state’s economy, to our tax revenue base, and for local charitable-giving is a LOSE-LOSE situation for everyone involved. Unless there is a drastic change in the punitive estate tax here in Rhode Island, anyone in my position would be a fool not to leave.”

“If our Rhode Island economy is to ever reach its full potential, we must stop the hemorrhaging of people and wealth”, said Bill Felkner, OSPRI founder and Director of Policy. “We hope that the General Assembly seriously considers these findings and that they can find a way to reverse this trend.”

According to the OSPRI study, Rhode Islanders are fleeing to states where the average tax burden is 14% lower. The Estate Tax, however, is the primary driver of the out-migration of wealth.

“The estate tax is one of the most counter-productive taxes in our state’s tax code”, continued Felkner. “Small and family businesses are often forced to dissolve and many  prudent high-net-worth individuals will simply leave Rhode Island to avoid the ‘death tax’.”

John M. Harpootian, a principal in the law firm of Paster & Harpootian, Ltd. who limits his practice to estate planning, stated that “It is a common practice to advise Rhode Island residents that a change of domicile can save significant estate tax … . During just the last 5 years, our office has seen nearly 100 of some of the wealthiest Rhode Island residents change their domicile to avoid paying RI estate taxes at their deaths.”

On January 14, OSPRI conducted a briefing for legislators who were interested in learning more about the study’s findings. Attending the briefing, conducted by Scott Moody and Bill Felkner, were Senators Kettle, Maher, Pinga, O’Neil, Ottiano, and Shibley along with Representatives Chippendale and Gordon. Also attending the briefing was Gary Sasse, former Director of Administration and former RIPEC Executive Director, who supported the study’s findings in stating that “RI’s Estate Tax has a negative impact on the State’s ability to maintain wealth and thus enhance investments. We must develop and implement a tax reform strategy to address this if we are going to going to improve our economic competitiveness.”

“OSPRI will continue to provide vital research about the critical issues we face in our state”, said Stenhouse (OSPRI Executive Director). “Out-migration is a serious problem for RI. Without an honest debate about the actual consequences of our public policy, we will continue to chase our tail.”

The State of America’s Private Sector V

There is a lot of chatter on the internet about Amity’s article revolving around how comparing Maine and New Hampshire is bogus.  Well, after considering these arguments, I wonder how critics would respond to this comparison–New Hampshire versus Rhode Island.

It would seem based on all the arguments I’ve read that Rhode Island should, without a doubt, be the winner in the race for economic prosperity.  First, consider how they are equal:

  1. Their largest city (Manchester, NH versus Providence, RI) are nearly equidistant from Boston.
  2. As such, both equally benefit from the so-called “Boston Commuter” effect from a geographical perspective.
  3. Both have an Ivy League University (Dartmouth in NH and Brown in RI).
  4. Both are NOT right-to-work states.

Yet, on other points, Rhode Island is superior to New Hampshire according to the critics.

  1. Rhode Island is a small state (the smallest in the country) so transportation costs are minimized.
  2. Rhode Island’s coastline far exceeds New Hampshire’s (which has the smallest coastline of any state with oceanfront).
  3. Rhode Island is bordered on all sides by a wealthy state (MA is the 3rd highest and Connecticut is the highest).

The chart below shows the results of this horse-race.  Prior to RI’s enactment of the sales and corporate income tax in 1947, both RI’s private sector and per capita personal income were higher than NH’s by a comfortable margin.  After 1947, NH’s private sector decisively pulls away and the gap in per capita personal income beings to narrow.

Then the final nail in the coffin was driven in 1971 when Rhode Island enacted its individual income tax.  The gap between the two states private sector continued to widen, but, more importantly, per capita personal income in NH exceeds RI for the first time in 1978.  The gap has widened ever since with NH having, in 2009, the 8th highest per capita income while RI has the 16th.

So what advantage am I missing, other than a larger private sector, does NH hold over RI that explains this difference in economic performance?

New Hampshire versus Rhode Island Private Sector and Per Capita Personal Income