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Taxpayers Voting With Their Feet

busy beach scene in Miami Beach, Florida.
Miami Beach, Fla. Photo by Flickr user pml2008.

Depending on where you live, you may have seen a headline in mid-December either celebrating or bemoaning the change in your home state’s population.

Here in Florida, the tone was decidedly celebratory – and as a tax professional, I can’t say that I was surprised.

As the South Florida Sun Sentinel reported, the latest round of estimates from the U.S. Census Bureau cemented Florida’s position as the third-most populous state in the country, trailing only California and Texas. We first seized the position, surpassing New York, in 2014; four years later, it is clear that not only are we likely to hold on to our spot, but that the gap between our population and that of New York will continue to grow. Florida had the fifth-fastest growing population in the country in the past year, while New York was one of nine states that saw its population decline in the same period.

As the Sun Sentinel observed, weather may be a major factor in migration patterns: Texas and Florida had the largest numeric growth, suggesting that some Americans may just be sick of battling the polar vortex every January. But the tax climate has its part to play, too.

I compared the Census Bureau’s population estimates to WalletHub’s calculations of overall tax burden by state for 2018. The result was that, with a few exceptions, people are generally migrating from higher-tax states to lower-tax states. Of the five states that saw the largest growth between 2017 and 2018, none ranked higher than 29th in overall tax burden; of the five whose populations decreased the most, four were in the top 15. (The fifth, Alaska, is the least burdensome state for taxes by WalletHub’s calculations, but faces other obstacles to attracting and keeping residents.) Trends from 2010 to 2018 are similar, with the top five growth states ranked 22nd or lower for tax burden, and the five states losing population fastest in that period all in the top 15 for taxes.

These trends are not purely migration-driven, of course. Population changes also include births and deaths, as well as inflows and outflows. The national population grew overall in 2018, meaning that state increases were not a zero-sum game. And estimates can be somewhat volatile year to year, especially in smaller states. But taken together, they still create a fairly clear trend of growth favoring lower-tax states.

This is not to say that most, or even many, people sit down and decide to move purely to reduce their tax bills. There are plenty of factors driving the long-running trend of population movement from the Northeast and Midwest to the South and West. On a personal level, reasons to move can range from family to hobbies to the strong desire to never own a snow shovel again.

However, taxes play a big role in two of the most common reasons to move from one state to another: economic opportunity and overall cost of living.

If you are moving primarily to improve your quality of life through increased earnings, looking for a friendly tax climate is a key piece of that puzzle. We can see as much in the Census Bureau’s estimates. Many of the fastest-growing states, including Florida, Texas, Nevada and Utah, have quite low total tax burdens as well as either no income tax or, in Utah’s case, a relatively modest 5 percent flat tax rate combined with low property costs and taxes. Northeast states, including New York, Connecticut and New Jersey, impose higher than average tax burdens on their citizens. California, which remains the most populous state in the country, is also a high-tax state; while its population has grown 6.2 percent since 2010, a fairly average rate, it fell to only 0.4 percent growth last year, which was only about two-thirds of the national average.

And of course some people do move specifically because they feel their state tax duties have become too much of a burden. Illinois was second only to West Virginia in percentage of population lost from 2017 to 2018, and second only to New York in numeric population loss, its fifth year of population decline. Notably, it was the only Midwest state with a negative change in population last year; it also imposes the 8th-highest tax burden in the country, according to WalletHub. “It’s taxes. It’s corruption. It’s politics,” Mary Miller, an Illinois transplant to Florida, told the Chicago Tribune.

Many politicians and their progressive allies in high-tax states routinely deny that taxes are a big motivator in where people choose to live. The figures tell a far different story. And I expect that many people who choose to set up or relocate their households or businesses will continue to favor states with milder tax climates, as well as those with more sunshine.

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