Taxes Have Little Effect on People’s Decisions about What State to Live In

A lengthy and exhaustive new report from the Center on Budget and Policy Priorities confirms what reality-based analysts have known for a long time: state taxes do not weigh heavily in people’s decisions about where to live and work.

Among the report’s conclusions, most of which will be familiar to folks who have been following this issue:

  • A very small fraction—no more than 2 percent—of Americans move to another state in a given year.
  • Of those who do move, most cite job- and family-related reasons for moving. Basic analysis of Census Bureau survey data shows that very few people move across state lines because of differences in state and local taxes.
  • A decades-long migration from the snowbelt to the sunbelt has been driven mostly by weather preferences and housing costs. Savings on housing costs are usually larger in these cases than savings on taxes.
  • Many specific state-to-state migration flows are inconsistent with claims about the impact of taxes. To take just one example, New Hampshire, which levies no income tax on wages and salaries and no sales tax, has seen net out-migration to states that do levy such taxes, including Maine.
  • The average family that moves across state lines is middle-class, not rich.

The report also confirms findings from MECEP’s analysis of IRS migration data, which shows that more people and income moved from New Hampshire to Maine than from Maine to New Hampshire over a fifteen-period beginning in the mid-1990s (you can use the Tax Foundation’s handy tool to see for yourself). From page 11 of the report:

New Hampshire lost migrants to income-taxing Maine and had little net in-migration. Overall, New Hampshire lost almost as many households to other states as it gained. Its lack of an income tax did not prevent some 373,000 households from moving out from 1993-2011, only slightly fewer than the 389,000 who moved in. All of New Hampshire’s net in-migration was attributable to in-migration from Massachusetts, mostly from the Boston metropolitan area.18 More than a quarter of the workers in such households continue to work in Massachusetts, and their migration is not driven by the absence of an income tax in New Hampshire since they would still pay income taxes on their wages and salaries to Massachusetts. Finally, Maine, which imposes the ninth-highest top income tax rate of any state, experienced net in-migration from New Hampshire from 1993-2011.

In other words, the data does not support the idea that tax policy is causing people to “vote with their feet” and move to New Hampshire.