Americans Continue Migrating From High-Tax to Low-Tax States
Increasing mobility and remote work make taxes an important consideration in where to live.
This probably won't come as a surprise to many readers, but when people move, they tend to prefer migrating to places where, among other considerations, the taxes are lower than in their old digs. Data from the U.S. government as well as from moving companies reveals that—as we've seen in the past—high-tax states are losing residents to states that take a smaller bite out of people's wallets.
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On Average, Americans Move From High- to Low-Tax States
"Americans are continuing to leave high-tax, high-cost-of-living states in favor of lower-tax, lower-cost alternatives. Of the 26 states whose overall state and local tax burdens per capita were below the national average in 2022 (the most recent year of data available), 18 experienced net inbound interstate migration in FY 2024," Katherine Loughead wrote last week for the Tax Foundation. "Meanwhile, of the 25 states and DC with tax burdens per capita at or above the national average, 17 of those jurisdictions experienced net outbound domestic migration."
Loughead crunched numbers from both the U.S. Census Bureau as well as U-Haul and United Van Lines. The government data tracks population gains and losses across the country while numbers from the private companies is helpful for comparing flows in and out of various states. The results are revelatory, though not unexpected.
"For the second year in a row, South Carolina saw the greatest population growth attributable to net inbound domestic migration" according to Census Bureau figures. The Tax Foundation separately ranks South Carolina at number 9 for tax burden, with 1 being the lowest tax burden among states and 50 the highest. Rounding out the top-10 population-gainers were Idaho (ranked 29), Delaware (42), North Carolina (23), Tennessee (3), Nevada (18), Alabama (20), Montana (27), Arizona (15), and Arkansas (26).
According to census data, Hawaii lost the biggest share of its population to other states; it's ranked at 48 for the third-highest tax burden in the country. The rest of the top 10 states for population outflow were New York (50), California (46), Alaska (1), Illinois (44), Massachusetts (37), Louisiana (12), New Jersey (45), Maryland (35), and Mississippi (21).
Numbers released this month by U-Haul and United Van Lines showed migration patterns closely, but not precisely, tracking the Census Bureau's information. Loughead attributes the disparities, at least in part, to the companies' varying geographic coverage and market share.
Taxes Aren't the Only Factor, but They Affect Other Concerns
With Alaska, the state with the lowest tax burden, seeing a net outflow of people, it's obvious that taxes aren't the be-all and end-all when it comes to deciding where to live and do business. Alaska has a challenging climate, to say the least, and limited opportunities. Those considerations can offset the attraction of state and local authorities' restrained appetite. But Hawaii lost the biggest share of its population among the states, showing that there's only so much a beautiful climate can make up for.
"Many individuals cite job opportunities, cost of living, family reasons, or lifestyle reasons for moving from one state to another," notes Loughead. "While taxes are far from the only factor affecting the cost of living or the job opportunities available in a state, they are an important factor, and they are one that is directly within policymakers' control."
Looking just at income taxes, which are among the more easily compared taxes, the Tax Foundation's Loughead points out that "in the top third of states for highest domestic migration-related population growth, the average combined top marginal state income tax rate is about 3.5 percent. In the bottom third, it's 3.2 percentage points higher, at about 6.7 percent."
Raising Taxes Especially Repels Those With More To Lose
Taxes are most often a make-or-break issue for relatively wealthy people who are heavily impacted by high rates and tend to be more mobile. Looking in 2020 at households making more than $200,000 per year, Chris Edwards of the Cato Institute observed that "interstate migration of high-earning households is correlated with tax levels. Nearly all the states with high net in-migration ratios have lower taxes."
In fact, the income tax has long played a role in where Americans choose to live and do business. Last year, a paper published in the American Economic Journal: Economic Policy found that, as summarized by the University of California-Riverside:
State-level tax policies from 1900 to 2010 examined in the paper reveal that income tax adopting states increased revenue per capita by 12% to 17%, but that increase does not correspond to an increase in total revenues for the government in monetary terms. This is because the introduction of income tax in the post-World War II era led to out-migration by wealthy Americans.
According to co-author Ugo Antonio Troiano, states adjusting tax policies should be careful since "raising taxes too much might backfire, as the state might lose too many relatively wealthy contributors."
So, over the course of more than a century, people have tended to move away from high tax states and take up residence in low-tax states. That's especially true for those with the most skin in the game and the greatest ability to pick up and relocate.
Remote Work and Growing Mobility Make Taxes a Bigger Concern
Of course, technology and changing work norms have made a larger share of the population mobile. Amid 2020's draconian COVID-19 lockdowns, Cato's Chris Edwards warned that "policymakers in states with high taxes and big government need to wake up to the new realities of mobile businesses and mobile lifestyles. They should cut bloated spending and create simple, low-rate tax codes."
The Tax Foundation's Loughead similarly comments that "in the post-pandemic era of increased remote and hybrid workplace flexibility, more Americans now enjoy the flexibility to live in a state of their preference while working for an employer located elsewhere….In recent years, several states that recently had highly uncompetitive tax codes—like Iowa, Louisiana, and Arkansas—have taken significant steps to improve their tax structures and better compete with their lower-tax neighbors."
Taxes—whether low or high—have always played a role in where people decide to live. Tax rates and rules to enforce them also affect the cost of living and business environment in ways that further nudge people toward some locales and away from others. With Americans' growing ability to separate where they live from where they work, tax policy is only increasing in importance as a means to attract people—or to drive them away.
