Yesterday, I presented two facts:

• Every year, from 2003 to 2008, thousands of people who had filed tax returns from Rhode Island filed them from somewhere else. Subtracting those who moved in the opposite direction, during that five-year span, the state lost 17,221 taxpayers.
• Because those leaving have typically had higher average incomes, the state has lost hundreds of millions of dollars, on a net basis, in taxable incomes — $915,863,000 to be exact, from 2003 to 2008.

Nonetheless, on Monday, I showed that, for most of that time span, wealthier taxpayers increased at a healthy rate. So who is leaving the state? The following charts show trends by income bracket, using IRS and American Community Survey data.

Sticking to the years for which I have data from both sources, the number of households earning below $50,000 decreased by 38,335 from 2002 to 2008, while the number of tax returns decreased by 19,353. For the range of $50,000-74,999, the corresponding numbers were 15,740 and 6. Noting that my migration data is shy a year, with 17,221 tax returns directly attributable to out migration from 2003 to 2008, it ‘s tempting to suggest a direct flow of this group out of the state.
However, those losses correspond with a 44,910 increase in households earning above $75,000, accounting for all but 9,165. For tax returns, the numbers are a 31,841 increase above $75,000, for an overall increase of 12,482. Considering that those leaving the state have had a higher income than those arriving, it can’t be the case that Rhode Island is importing wealthier residents.
And anybody who’s been living in Rhode Island will find a dramatic shift toward wealth to be a surprise. Indeed, Phoenix Marketing data of millionaire households shows the increase in millionaires to be relatively small. My suspicion is that, given the housing boom, the shift has more to do with the sale of houses — with people in the upper-working to lower-middle class range selling their homes, often leaving thereafter. The phasing out of the capital gains tax would have created incentive both to sell (because able to keep more of the profit) and to buy (because property in Rhode Island would be taxed at a lower rate, perhaps 0%, when sold).
Call it an “up and out” trend. Each year, until the end of the decade, the number of one-year-only “rich” people amounted to more than those who returned to prior income levels or left the state.
One puzzle in the numbers arises from the difference between Census household data and IRS return data. Why did the number of households between $50,000 and $74,999 (what I’m calling “lower middle class”) decrease while the number of tax returns remained pretty much the same? One possibility is that people joined their incomes for the household results but filed separate returns. A look at just joint returns suggests that as a factor:

Turning to the Census data, households earning between $100,000 and $199,999, for example, increased by 25,274 (2002-2008), with 16,426 of those directly attributable to an increase in joint returns. That leaves 8,848 households, which would account for 17,696 tax returns if they all paired up.
Unfortunately, I’ve run out of time, this morning, so I’ll have to draw the threads together later.
(The next post in this series is here.)