The Tax Foundation has responded to our recent paper showing that interstate differences in taxes (especially income taxes) have only a negligible impact on peoples’ decisions about whether and where to move. On the core question that a number of states experiencing net out-migration are debating — whether cutting their income taxes would stem this trend — the Tax Foundation seems to agree with us: “Mazerov has a point in critiquing the simplistic argument that high-earners are running from state-to-state in pursuit of slightly lower taxes.”
Yet, while largely conceding our major point — that very few people move to reduce their taxes — the Tax Foundation (like the American Legislative Exchange Council, or ALEC) argues that taxes have a significant indirect effect on migration because lower taxes strengthen state economies, thereby attracting workers.
There’s little compelling evidence to support the premise that low state taxes significantly boost growth. As our earlier report explained, a Tax Foundation survey of academic research on the issue omitted or mischaracterized a lot of research that doesn’t support its claim.
Speaking of academic research, it’s telling that both the Tax Foundation and ALEC ignored our migration paper’s review of academic research on the impact of state and local taxes on migration, which overwhelmingly finds that taxes aren’t a significant factor.
The Tax Foundation also criticized our characterization of interstate migration, which has averaged 1.6 percent annually in the past ten years, as “relatively modest,” largely by drawing some apples-and-oranges comparisons to other nations. What the Tax Foundation doesn’t dispute is that several states have raised taxes on the rich in the past two decades even as other states have cut them (and the number of states without income taxes has remained unchanged), yet the interstate migration rate has fallen by almost half during that period. To us, these facts suggest that much larger economic forces than tax differentials are at work.