As the din of America’s falling headfirst over the fiscal cliff reverberates across the nation, the Obama administration is quietly killing a key economic metric that tells how, and how many, people are voting with their feet. Since 1991 the Internal Revenue Service has been compiling statistics on filers’ addresses, which the agency’s Statistics of Income division uses to show who is moving into and out of every county and state in the nation. As you’d expect, the IRS also knows the aggregate income levels of those who move. So the movements of the most fundamental productive components of the economy — taxpayers — can be analyzed by journalists and economists, or could until now.
The IRS and the U.S. Census Bureau (which provides technical support in reporting tax migration data) have not made an official announcement as to why the program is being discontinued. So we are left to speculate why such vital economic statistics suddenly got canceled.
Some would be glad if the IRS data simply went away. Blue states with high state and local tax burdens have come out looking bad in recent years. California and New York have been embarrassed publicly, as a steady exodus is underway from both.
Regarding California, the free-market Manhattan Institute for Policy Research concluded in September that “this exodus represents a huge reversal to established patterns of domestic migration, and suggests that the Golden State is no longer perceived by most Americans as the land where dreams come true.”
The think tank, which analyzed ten years of IRS data to show that California’s population is fleeing to Texas, characterizes the agency’s data as the “most useful tool” among sources identifying migration patterns. The public-policy ramifications of a declining tax base are clear, according to the Institute: Economic damage ensues when companies, fearing inevitable tax increases, get cold feet in jurisdictions with declining revenues.
Speaking of companies: The state of New York is running a high-profile ad campaign suggesting that businesses are coming back to the Empire State. Maybe some untold numbers are, but more telling is that taxpayers are leaving. In May, the New York Post published “Outgoing Income, Millions Flee New York’s Tax Burden,” whose lead was “New York state tops the nation in one key export — people fleeing high taxes.” The article cited the IRS tax-migration numbers, which the conservative Tax Foundation makes available in a web-based application that allows anyone to see easily how many taxpayers there are in each state.
The Post article, which found Florida to be the most popular destination for fleeing New Yorkers, spawned coverage on Fox Business News, where economist Arthur Laffer said: “You have two locations, A and B. If you raise taxes in B and you lower them in A, producers and manufacturers and people are going to move from B to A.” Media Matters, a liberal organization, responded with hostility, calling Laffer a “serial misinformer” who makes dubious claims supporting lower tax rates.
Change Maryland, an organization that has clashed with Governor Martin O’Malley, reported IRS tax-migration findings in July, determining that Maryland accounted for the largest taxpayer-migration exodus of any state in the region between 2007 and 2010, with nearly 31,000 residents having left. The report also identified Maryland’s key competitor in attracting taxpayers: Lower-taxed Virginia is now home to 11,455 former Marylanders, taking $390 million in taxable incomes during this three-year period.
After receiving widespread attention from prominent media, including National Review, the report’s findings prompted a personal, partisan political attack on Change Maryland and its founder, Larry Hogan, by the O’Malley administration.
While it remains to be seen what the official position of the IRS is, unofficially it is suggesting that the problem lies in coordinating with the Census Bureau. It is asking for comments on how people use the data and how important it is, presumably so that higher-ups at the agencies can reverse their decision if necessary.
The very idea of people voting with their feet is uncomfortable to some politicians. Fortunately, others realize the damage that a declining tax base causes and prefer transparency over attempting to delete statistics that reveal the problem.
— Jim Pettit, a communications and public-policy consultant, provides research services for various clients, including Change Maryland.