Politics & Policy

High Taxes Are Costing Blue States Residents

(Photo: Vlad Ghiea/Dreamstime)
Americans are moving in droves to conservative states with limited governments and low tax rates.

Liberal policy analysts always recycle the same excuses when attempting to dismiss the significance of taxpayers’ moving to other states: The South has a better climate, they’ll say. The Rust Belt would be declining no matter what. The transfer of wealth from one state to another is negligible.

Whatever agenda is in vogue on the left at any given moment — tackling income inequality, increasing government spending on a particular program, implementing a progressive tax code — the message is always the same. It boils down to denying that economic considerations are a factor in relocation decisions. And, as much of the liberal economic narrative does, this assertion disregards the facts.

Last month, the Internal Revenue Service released the latest tax and migration numbers for 2015 and 2016. To compile the data, the IRS compares individual tax returns and reports on where people of various ages and income levels are moving. Continuing a decades-long trend, the latest figures show that Florida is seeing an overwhelming influx of taxpayers from other states. In 2015 and 2016, the Sunshine State attracted a staggering net inflow of $17.4 billion in adjusted gross incomes.

A popular argument on the left holds that this influx is the result of retirees heading to Florida to escape colder weather. A Stanford University professor claimed in the Guardian newspaper last month that residents are attracted less by the state’s relatively low tax burden (it has no income tax) than by its “sun, sand and palm trees.” But a closer look at the IRS’s numbers tells a different story.

While nobody denies that people retire to Florida, the IRS is able to break down new residents by age groups. During the 201516 reporting period, nearly 70,000 tax filers between the ages of 26 and 35 moved into the state. That age group accounted for the biggest influx of new Florida residents, over ten thousand more than the 55-and-over category.

Florida’s success in growing its tax base is a national outlier. But South Carolina, despite being a much smaller state, ranks second in net income gained from migration at $2.3 billion. The states that lost the most net taxpayers in both dollar and percentage terms relative to their existing tax bases are Connecticut (–$2.7 billion) and New York (–$8.8 billion).

What does this tell us? First, the size of a state’s government matters. Florida’s per capita state spending is the lowest in the country, while South Carolina’s is the eleventh lowest. Connecticut, meanwhile, has the eighth highest per capita state spending, and New York ranks 15th.

The tax burden a state imposes on its residents matters.

Second, the tax burden a state imposes on its residents matters. The Tax Foundation tracks individual income, sales, property, and corporate taxes levied by each state to determine the aggregate burden on its residents. According to the group’s rankings, New York has the second heaviest aggregate tax burden of any state, while Florida’s is the fourth lightest. It’s almost as if Florida’s limited government and low tax rates put it in a better position to attract new residents than New York!

Don’t tell that to liberal economic wonks, though. A few years ago, the left-leaning Center on Budget and Policy Priorities argued that people move for employment reasons in asserting that individual taxes themselves don’t prompt one to live in a particular state. Obviously, the tax burden is a consideration in major corporate relocations and the ability to start and grow a small business. Yes, people move because of jobs — but jobs move because of taxes.

The CBPP also explains that affordable housing is a major factor that determines where people choose to live. Of course it is. So-called impact fees are a hidden tax that developers pass on to new homeowners to pay for schools, libraries, infrastructure, and the like. They range from a national high of $31,000 per single-family home in California to nearly $4000 in Texas, according to the National Association of Homebuilders. California loses more taxpayers to Texas than to any other state.

It appears that at least one blue-state governor is starting to understand the significance of a declining tax base. Governor Andrew Cuomo told the New York Times this month that, “If you lose the taxpayers, you lose the revenue.” He was making the case that reducing state and local tax deductions in the federal code, as Congress is proposing, will exacerbate the state’s tax flight. The governor and legislature, however, have direct control over their own tax burden and should focus their attention there if they are really concerned about losing their residents to other states.

The importance of tax migration is not political. It’s about the basic financial security of every jurisdiction in the country. Rather than making excuses, liberal analysts and state governments should look at the numbers. What they will find in some cases won’t be pretty, but it should at least prompt a reconsideration of the tax policies that are pushing residents away in the first place.

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