Tax Analysts Blog

Income Migration: What Does It Really Mean for States?

Posted on Sep 4, 2013

There’s an old political adage that citizens can “vote with their feet.” In the past few years, there have been numerous reports of residents voting with their feet by moving out of high tax states. Pro golfer Phil Mickelson made headlines when he announced early this year that high taxes could drive him out of California or even the country.

In 2012, a report by anti-tax group Change Maryland said that because of Gov. Martin O’Malley’s “millionaire’s tax” a net 31,000 residents left the state between 2007 and 2010. The millionaire’s tax was actually a surcharge imposed for three years on taxpayers with net taxable income over $1 million. The surcharge increased the income tax rate for applicable taxpayers from 5.5 percent to 6.25 percent.

New Yorkers are subject to some of the highest state tax rates in the country, so it is not surprising that commentators have suggested residents will leave the state in droves. And it appears to be true. As reported by the Tax Foundation, between 2000 and 2010, New York lost $45.6 billion in income to other states. That’s far more than any other state. The next closest is California, which lost $29.4 billion over the same period.

This is a significant amount of income migration. But where did it all go? The answer, not surprisingly, is that much of the income went down south. Florida reportedly had a net gain of $67.3 billion. And of that gain, $13.3 billion was attributed to New Yorkers. Arizona and Texas also saw gains of $17.7 and $17.6 billion, respectively.

But lest we think all of the income went to states with warmer temperatures, it’s interesting to note that New Jersey and Connecticut also reaped some benefits from those escaping New York. Both New Jersey and Connecticut are still high tax states, but they are lower than New York. Some tax relief is better than no tax relief, I suppose.

Utilizing similar data as the Tax Foundation, author Travis H. Brown created an interesting map entitled “How Money Walks.” The map utilizes IRS data to purportedly show how income has moved around the country. Note, however, that the data is from Forms 1040 filed from 1995 through 2010. It does not reflect any tax policy changes made by states since 2010.

Still, the data seems to strongly suggest that tax policy (more than warm temperatures) does in fact drive income migration. But that statement is not particularly shocking. In addition to the interstate income migration, U.S. citizens have expatriated to avoid federal tax consequences and even abroad, there has been migration among European nations to avoid high tax countries (remember Gerard Depardieu?).

The question is what does this mean? Will we one day end up with the majority of millionaires in a handful of low tax states while those making more meager incomes remain in high tax states? No. It’s highly unlikely. The decision of where to locate is not done in a vacuum. It is the result of many factors, income tax burden being only one of those factors. Employment, family connections, and quality of public services (in particular education and health care) play roles as well. Migration solely because of tax policy is uncommon and likely restricted to the very rich.

But this does not excuse bad tax policy. Good state tax policy dictates a stable system with a broad base and low rates. High income tax rates can cause a small, but wealthy portion of the population to leave and can directly affect small businesses. We have the federal government to worry about income redistribution and business regulation. States should focus on tax systems that will create competitive business climates. That, in the end, will encourage residents to stay put.

Read Comments (1)

edmund dantesSep 4, 2013

"States should focus on tax systems that will create competitive business

Not gonna happen. Politicians care about spending money, that's the source of
their power. Politicians don't ever get re-elected for creating a competitive
business climate. Bureaucrats see their pay go up the more people they hire and
manage. Working citizens and businesses are cows to be milked for more and more
tax dollars.

Too bad taxpayers can't unionize the way public employees do.

Submit comment

Tax Analysts reserves the right to approve or reject any comments received here. Only comments of a substantive nature will be posted online.

By submitting this form, you accept our privacy policy.


All views expressed on these blogs are those of their individual authors and do not necessarily represent the views of Tax Analysts. Further, Tax Analysts makes no representation concerning the views expressed and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, fact, information, data, finding, interpretation, or opinion presented. Tax Analysts particularly makes no representation concerning anything found on external links connected to this site.