BEYOND THE NUMBERS
This blog post previews key findings from a forthcoming update to CBPP research on the effect of taxes on interstate migration. Like its predecessors, the latest update will show that the migration-related claims of state income tax opponents are grossly exaggerated.
Policymakers will consider potential tax code changes in many states’ 2023 legislative sessions, and one oft-cited argument they shouldn’t consider is the claim that state taxes are a significant driver of people moving into or out of a state.
Most people in the U.S. plant roots in the places they live, and it takes a lot to uproot and move across state lines. Only about 1.5 percent of people make interstate moves in any given year.
For those who do move, what attracts them to one state over another? For some it’s a job opportunity. For others it’s family, housing, or even better weather. One factor that comes up rarely, if ever, is taxes.
That doesn’t stop anti-tax advocates from claiming that proposals to raise state revenues will drive people, especially high-income people, away. They paint a picture of doctors, engineers, and other highly skilled and sought-after workers leaving the state en masse. They also cite the corollary, that lowering taxes will attract meaningful numbers of people to the state. These tax flight claims are dire — and wrong — and too many policymakers find them persuasive.
The reality is that even states with higher taxes have room — without fear of increased out-migration — to raise additional revenue needed for housing, health care, infrastructure, and other things that improve their residents’ lives and make their state more attractive. Take for example Massachusetts, where voters recently approved a millionaires tax to fund state education and transportation projects. Conversely, states considering budget-busting tax cuts or eliminating their income tax should harbor no illusion that such policy changes will draw significant numbers of people to their state.
Here’s what we know about interstate movers:
- Jobs and family motivate interstate movers: The consensus of migration research indicates, and federal survey data generally confirm, that most short-distance moves are motivated by a desire for better housing options, while long-distance moves are more likely for reasons related to a job (such as a layoff or a new opportunity) or family (such as a marriage or retirement).
- Interstate migration has declined even as differences in state tax structures have widened. Since 2010 the average annual interstate migration rate has hovered around 1.5 percent, just half of what it was in prior decades. Over that same period, states’ tax disparities have widened: in 1990, combined state and local taxes per person in the ten highest-tax states were, on average, 69 percent higher than those in the states without income taxes. By 2020 they were 85 percent higher. (This calculation excludes Alaska, North Dakota, and Wyoming, whose heavy reliance on oil, gas, and coal severance taxes skews the data.)
- Households with lower incomes move across state lines more frequently than those with higher incomes. Moving is expensive, and if taxes spurred interstate moves, one would imagine that households with higher incomes, which could more easily afford moving costs, would migrate across state lines more frequently than those with lower incomes. The data generally show the opposite. In all but nine states, higher-income households are less likely to move out than households with lower incomes.
Migration data for individual states also reveal patterns that undermine claims that having no income tax is a powerful migration magnet and that having a high income tax is a powerful incentive to leave. Here are some examples from our upcoming report:
- Some states cited as key examples of tax flight have fewer people leaving than do states with no income tax. California, a higher-tax state often cited in tax flight claims, ranks among the lowest of states in terms of residents with incomes above $200,000 leaving in an average year, from 2011 to 2020. For people with incomes below $200,000, relatively high-tax New York has seen a lower share leaving annually on average than no-income-tax Florida.
- Many people left no-income-tax Florida for states levying income taxes. Florida famously attracts a lot of interstate migrants, but many people also leave the state each year — including to states with higher taxes. Georgia has an income tax, but almost 15,000 more households moved from Florida to Georgia than vice versa. Similarly, North Carolina has had an above-average income tax rate for the Sunbelt (despite recent cuts), yet almost 18,000 more households moved from Florida to North Carolina than did the opposite.
- Large numbers of people move into higher-tax states every year. An average of more than 1.2 million people moved into the 19 higher-tax states every year during the 2010s. While most of these states are experiencing net out-migration overall, 11 of them are replacing more than 90 percent of departing households with incoming ones, and all of them are replacing at least two-thirds. And three of those states — Delaware, Maine, and Oregon — saw more households on average move in than out. The theory of tax flight can’t explain why so many families are choosing to move to higher-tax states. And there are good reasons other than taxes — in particular, undesirable weather and high housing costs — why some states are seeing more people move out than in.
Concerns over migration trends are understandable, given the implications for a state’s economy and tax base. But policymakers in states that levy income taxes and that have experienced net out-migration shouldn't assume that income tax cuts will reverse this trend. Instead, by driving harmful cuts to schools, health programs, parks, libraries, and other public underpinnings of a thriving state, they are far likelier to make their state less attractive — not more.
States would be much better off focusing their efforts elsewhere: by maintaining and enhancing their investments in affordable housing, schools, transit, health care, and infrastructure, and by adopting cost-effective economic development and job creation strategies that can benefit current and prospective residents across income and skill levels. These approaches can truly make a state one where families will plant deep roots.