Short Answer: There is no correlation between a state’s income tax rate and the percentage of wealthy households living there. Since 43 out of 50 states have a state income tax, most Americans accept it as the norm.
Background : People choose where to live based on multiple factors, including jobs, proximity to family, and lifestyle preferences. The fear sometimes expressed that a state income tax on high income households will drive wealthy people from the state is not supported by the evidence. In fact:
- 3 of the states with the highest top marginal income tax rates (New Jersey, California, and Hawaii) have higher percentages of households with incomes above $200,000 and higher mean incomes for the top 5% than any of the 7 states with no income tax.
- Those 3 high-income-tax states also have both a higher percentage of well-to-do households and higher top incomes than the U.S. average.
- 5 of the 7 states with no income tax have fewer households with incomes over $200,000 than the U.S. average.
- The average income of the top 5% of households is lower than the U.S. average in all the states with no income tax.