To the editor:
Wednesday’s editorial (“Sun, lack of taxes might tip the balance,” Feb. 3) puts forth the logical argument that taxes will cause people to move to lower tax states. I used to believe that argument too and, as an economist, have dug into it. However, careful research into this question finds surprisingly little evidence to support it. The report mentioned compares trends in migration and tax policy to draw their conclusions. People are moving from high-tax states such as Massachusetts to low-tax states like Florida, and they tend to be high-income people. The editorial concedes there are other reasons, including weather, for such movement. But it then asks why folks are moving to New Hampshire. Here again, there are other reasons – such as a lower cost of housing and natural amenities (mountains, lakes, etc.).
Convincing evidence isolates the effect of taxes on these decisions to move. One way is to look at whether people move in response to changes in tax policies that uniquely affect them, such as the new millionaire taxes in some states or the income tax breaks given retirees on their pension income. Researchers also use statistical models that control for climate, cost-of-living and other factors. Finally, some surveys actually ask people why they moved. The evidence is pretty universal in finding that taxes are way down the list of factors that lead people to move, if they affect it at all. Moreover, the percentage of people who move across state lines is quite small.
This is not to say that no one moves because of high taxes. But, lowering taxes to prevent people from moving has consequences too. The evidence is clear here as well – the effect on migration is not strong enough to make up for the lost tax revenues. So, those revenues must be found in other taxes/fees or government services must be cut, both of which affect the desirability of the state. This argument is not new. In fact, it has been used for almost a century, leading states back in the 1920s to begin eliminating their taxes on estates (until a federal estate tax credit was enacted to help stop it). What is new is a growing body of research that casts strong doubt that tax-induced migration has a meaningful effect on state budgets or economies. It’s time to quit letting fears about taxes driving away rich residents dominate discussions about what makes good policy.