Tax Flight Is a Myth: Higher State Taxes Bring More Revenue, Not More Migration

August 12, 2011 | Economic Opportunity Institute

From the Center on Budget and Policy Priorities:

tax-flight-cbppAttacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states. The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false.

The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.

The basic facts, as this report explains, are as follows:

  • Migration that’s occurring is much more likely to be driven by cheaper housing than by lower taxes. A family might be able to cut its taxes by a few percentage points by moving from one state to another, but housing costs are far more variable. The difference between housing costs in two different states is often many times greater than the difference in taxes. So what might look like migration in search of lower taxes is really often migration for cheaper housing.
  • Consider Florida, often claimed as a state that attracts households because of its low taxes. In the latter half of the 2000s, the previously rapid influx of U.S. migrants into Florida slowed and then reversed — Florida actually started losing population. The state enacted no tax policy change that can explain this reversal. What did change was housing prices.
  • Recent research shows income tax increases cause little or no interstate migration. Perhaps the most carefully designed study to date on this issue concerned the potential migration impact of New Jersey’s 2004 tax increase on filers with incomes exceeding $500,000. It found that while the net out-migration rate of this income group accelerated after the tax increase went into effect, so did the net out-migration rate of filers with incomes between $200,000 and $500,000, and by virtually the same amount.
  • Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. Studies show that such amenities as cultural facilities, recreational opportunities, and good public services are powerful attractions for potential migrants. Many of those services are financed with tax dollars. Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants.

Thus, while a few affluent households might leave a state because their income taxes are increased, the vast majority stay, and states gain a significant net increase in revenue to help support important services.

Read more from the Center on Budget and Policy Priorities »

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Posted in State Economy, Tax and Budget

Comments

  1. Winslow P. Kelpfroth says:

    I have found in my long life that no one with an experience was ever persuaded by an argument.
    when I was stationed in the DC area, I could have lived in one of a dozen counties; I chose the one with the lowest total tax on my income and wealth (they tax personal property there). I could have lived in Oregon, but I don’t. You may have a point that people don’t move out because of high taxation (although my friends in New Hampshire refer to Mass tax increases as NH development programs), but the careful study to which you refer doesn’t and cannot calculate the people who don’t move into a high tax area.

  2. You get what you pay for: good schools, fire and police protection, parks and a cleaner environment. Those who seek out lower taxes are wanting to freeload off of society; to the degree that they can, they’d like to withdraw from any communal responsibility. They want all the benefits of living in society while ignoring their responsibilities. Those wishing to break the social contract should be seen for what they are. We know from a million years of history that “every man for himself” isn’t conducive to making progress as humans. Even animals understand that they are stronger in a herd.

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