Tax Migration, Is It A Real Thing And What Do The Data Show?

Every year millions of Americans move, many to other states.  The IRS publishes migration data annually showing the movements of income tax payers based on changes in their mailing address from the previous year.  I did a post a while ago about Americans moving and alluded to this data. 

Like anything in the government, the data take a while to come out and lag behind.  So the current IRS migration data capture moves up to July 2020 which is only about 4 months into the covid pandemic. 

Covid sparked a clear flight from more dense urban areas to suburbs and rural areas, so that trend is only partially represented in this last data set.  Whether or not that trend has continued since then is up for debate. 

Let’s take a look at the data as it is….

 

Tax Migration

Tax Foundation has a great article about interstate migration which includes this nice map. (click for larger version)

 

There are a myriad of reasons for a move – to be closer to family, to be in a better climate, a change of job, or for us smart financial warriors to be in a lower cost of living area.  Covid as mentioned earlier was likely a reason for many as well.  The Tax Foundation however has found a trend:

With this in mind, one observation from the 2019-2020 IRS migration data is that a strong positive relationship exists between state tax competitiveness and inbound migration. Overall, states with lower taxes and sound tax structures experienced stronger inbound migration than states with higher taxes and more burdensome structures.  Of the 10 states that experienced the largest gains in income taxpayers, five do not levy individual income taxes on wage or salary income at all, and two others had top marginal individual income tax rates that were below the national median at the time. Recently, those states have grown even more competitive. Nine of the top 10 states either forgo individual income taxes on wage and salary income, have a flat income tax, or are moving to a flat income tax. 

….Meanwhile, among the 22 states (and the District of Columbia) that experienced net outbound migration of income tax filers, 15 states and D.C. had top marginal rates above the median. In the aggregate, states with a top marginal rate at or below the 2019 median of 5.4 percent gained 225,000 net new residents from the states with rates above the median.

The date do appear to support the premise that a states respective tax policies are affecting whether it’s seeing a net inbound migration or a net outbound.  This could be called tax migration.

High tax states such as New York, California, Maryland, and Massachusetts are losing people.  While more tax-friendly states such as Arizona, Florida, South Carolina, and Tennessee are gaining. 

That map only shows the 2019 – 2020 data, which as mentioned above is the latest from the IRS and includes the impact of moves in the first 4 months of the covid pandemic. 

A little internet sleuthing about tax migration found something more substantial…

 

Tax Migration

“How Money Walks” is a cool site with a slick interactive map of the U.S. showing interstate migration numbers from the IRS.  The site focuses on the monetary impact of moves but to do so must first show the population numbers.  It includes the IRS migration data from 1985 – 2019, and associated adjusted gross income (AGI) data from 1992 – 2019. 

Since the IRS migration data for 2020 has been released it would be nice if they added it to the map but we have what we have, it’s still a great tool. 

If you click on a state you get statistics for that state as a result of migration over time both from a wealth perspective and a population perspective.  Let’s look at California. (click for larger version)

 

The population data is migration data, not inclusive of total population.  A state like California sees a large influx of migrants from overseas, both legally and illegally.  So California’s total population in most years has been increasing (but not recent years).  As far as net migration within the U.S. however, California is losing more existing people than it’s gaining from other states, by far. 

By clicking “wealth mode” at the top right of the box on the left you get the AGI data for 1992 – 2019 based on the migration changes.  In order to determine the net AGI gain or lost you need a source of income data. 

It’s my assumption the creators got the income data from the U.S. Census Bureau which is the gold standard.  They do not say this explicitly that I can see but they do list the IRS and Census Bureau as data sources. 

As you explore the map also note that once you are viewing data for a particular state you can click on a county and the data are parsed out at that level.

 

Bias?

It’s clear the creators of this map are in the low tax camp by the way they write.   The project stems from a book by Travis Brown called How Money Walks (<–affiliate link).  I have not read the book but I did some data checks of the IRS migration data just to make sure they were not misrepresenting it and found their numbers to be accurately pulled.

So is it common for people to move to another state to have lower taxes?  Sure, I think it’s very likely.  Actually I’d imagine it’s one of the more common reasons for geoarbitrage. 

And if you want to dive deeper this post from the National Taxpayers Union Foundation breaks the numbers down and makes the case quite convincingly.  The Wall Street Journal agrees, citing states such as Florida, Texas, and Arizona as big winners in the migration game in 2020.

As a related anecdote I have friends who live in a town in Vermont that’s pretty close to the New Hampshire line.  They do almost all of their shopping in New Hampshire because NH has no sales tax, even though it takes more time and fuel costs.  They say it still is a net positive when they add up the money saved.

Your turn – Have you or would you consider tax migration to another state? 

Note* – I’m not interested in the argument as to whether wanting more taxes or seeking to pay less is right or wrong.  That gets into politics and morality and is just tinder to light an internet fire of angry keyboard warriors who bully and enjoy throwing insults at each other.