Taxing the Rich: How Incentives and Embeddedness Shape Millionaire Tax Flight

Taxing the rich is a central debate in an era of high inequality. Elite taxation can reduce income disparities and fund public investments, yet it also incentivizes top earners to relocate—potentially eroding the tax base and undermining redistribution. We argue that tax migration occurs at the intersection of incentives and embeddedness: While tax incentives encourage relocation, place-specific social capital anchors individuals to their communities, discounting those incentives. Drawing on 3.9 million observations of top earners over seven years, we study two natural experiments using IRS administrative data. First, the 2017 federal tax overhaul reshaped tax incentives in favor of lower-tax states, sparking widespread predictions of tax flight. Second, the COVID-19 pandemic weakened embeddedness, disrupting social and professional ties that root top earners in place. By studying these shocks, we find that tax incentives influence migration at the margin, but embeddedness plays a central role in shaping top taxpayers’ mobility