New Report Battles False Notions on Tax Flight

August 5th, 2011

A new report from the Center on Budget and Policy Priorities takes on the myth that changes in income taxes affect migration of wealthy families to/from a state. Often cited as a reason to cut taxes or to not enact income tax increases, the migration myth is mostly based on anecdotes and/or a misread of migration and income data.

Key Findings:

Housing costs likely have a greater influence over migration than taxes.

A family might be able to cut its taxes by a few percentage points by moving from one state to another, but housing costs are far more variable. The difference between housing costs in two different states is often many times greater than the difference in taxes. So what might look like migration in search of lower taxes is really often migration for cheaper housing.

Other quality of life factors, which are enhanced by adequate state revenue collection, may also affect migration.

Studies show that amenities, such as cultural facilities, recreational opportunities, and good public services are powerful attractions for potential migrants. Many of those services are financed with tax dollars. Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants.

Studies using data that showed a reduction of high-income households to demonstrate migration were actually seeing a decline in wealth due to the recession rather than out migration of wealthy families.

Critics of Maryland’s 2008 tax increase on income over $1 million points to the sharp decline that year in the number of filers in the state with taxable incomes exceeding $1 million as evidence that wealthy residents were fleeing the state. But an examination of actual tax return data shows that the vast majority of this decline occurred not because people moved out of the state, but because their incomes fell below the $1 million mark due to the recession and stock market crash; they remained on the tax rolls but in a lower tax bracket.

The Bottom Line?

It is not as simple as saving a few percentage points on a tax bill. People do not move away from their relatives, jobs, and communities because of taxes. Job availability, housing prices, educational opportunities and even the weather weigh more heavily in the decision-making process.

Mississippi should focus on maintaining adequate revenue to invest in education, public safety, transportation and other factors that make the state more attractive to new residents and improve the quality of life for those already raising families and operating businesses in the state.

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