Press Releases Legislative Alerts Congressional Ratings Heroes and Enemies Maps Email ATR Site Map Search
Home Press National Issues State Issues The Pledge Special Projects Get Active Join Donate
Legislative Alerts
Open Letters
National Projects
Cost of Government Day
Congressional Caucuses
Legislative Advisory Project
Congressional Ratings
K Street Project
National Issue Areas

Speeches and Testimony
Join ATR
Take Action!
Search ATR
Get Acrobat Reader

Cost of Government Day (COGD)
[2005] [2004] [2003] [2002] [2001]

SPECIAL FOCUS: INTERSTATE MIGRATION

A number of empirical studies have documented the surge of taxpayers moving from high tax to low tax states over the past 15 years. Most of these studies have counted the number of people leaving a high-tax state for a low-tax state and the result is overwhelming. Some of these studies have actually empirically tested reasons people leave states, such as weather, employment, relocation, and taxes, and have found taxes to be the single largest factor in the movement.

A recent study by Richard Vedder found the nine states with no income tax gained an additional 323,579 domestic residents from the 41 states with an income tax.

This analysis seeks to take previous studies one step further. Using data from the Internal Revenue Service (IRS), we calculate not only the number of taxpayers migrating, but also the income of the residents migrating. Our findings confirm previous studies that taxpayers are moving people leaving states with higher taxes but also higher unfunded pension and healthcare liabilities and higher per pupil education spending. 

Taxes matter and states raising taxes are losing population. In 2004 alone, the nine states with no income tax gained an additional 323,579 domestic residents from the 41 states with an income tax. The residents moving to states with no income tax took with them an additional $10.6 billion of adjusted gross income according to data by the Internal Revenue Service.

Furthermore, the states facing the largest fiscal problems from large unfunded liabilities in healthcare and pensions already face the largest out-migration of residents. Tax increases will only further this out-migration.

This problem will be compounded in 2007 and beyond as states will be required to account for unfunded healthcare liabilities. Moreover, as the population ages, many state workers will be retiring and ready to collect their pension and healthcare benefits. Reforms in state spending are clearly needed now to further enhance the gains made over the last 25 years but also to avoid erasing the gains achieved. The aging of the baby boomers will place a significant strain on policymakers and reform is needed to ensure taxpayers are protected in the future. These changes are needed now or taxpayers will be facing enormous tax increases.

Taxpayers and Their Paychecks Leaving High Tax States

When it comes to tax policy in the ten states with the highest tax burden, residents are voting with their feet.  From 1996 through 2004, the high tax states lost a cumulative 1.6 million residents.  Well over 210,000 individuals left high tax states in 2004 alone. 

The outflow of residents has serious implications for high tax states’ revenue base.  The total income losses in the states with the highest tax burdens amounted to a staggering $55.51 billion from 1996-2004.  These states have lost an average of $6.17 billion each year during this time period.

Total Income Losses of States with the Ten Highest Tax Burdens

The IRS data also reveal that the high tax residents are increasingly moving to low tax states.  While the states with the highest tax burdens lost 1.6 million residents from 1996-2004, the low tax states saw an in-migration of 1.1 million over the same time period.  In 2004 alone, 144,360 residents moved to low tax states.      

Due to the inflow of residents, the ten states with the lowest tax burdens have seen a cumulative real income gain of $27.3 billion.  Averaging $3.03 billion each year, the annual income gain is roughly equivalent to the size of Delaware’s state budget. 

Retirees are seeking lower tax burdens.  The chart below show the migration patterns in states without income taxes.  Apart from Alaska, which has a unique fiscal situation, the overwhelming trend is resident growth in all non-income tax states.  It is important to note that it is not only the sunny southern states experiencing an inflow of residents: New Hampshire gained over 60,000 residents from 1996-2004 and Washington gained over 100,000 during the same period. 

In addition to the significant in-migration to states without an income tax, states with large unfunded liabilities in health care and pension programs are losing population.  The 30 to 40 year old cohort faced with their own retirement and healthcare costs are leaving states with heavy unfunded liabilities that translate into higher taxes to pay for public employee benefits. 

Unfunded Pensions Yields Population Out-Migration

The migration of residents from high to low tax states is the largest issue facing state governments in over ten years.  Without significant fiscal restraint as well as health care and pension reform, states with heavy tax and entitlement burdens will continue to see residents leave for lower tax states, thus further draining state treasuries.    

<-- Back to the Front Page