June 09, 2005

Taxes & Migration

There’s an argument anti-tax advocates like to make - when people move from one to state to another, taxes are a main cause. However, the data just doesn't prove it. In fact, the data shows taxes are pretty much not a factor.

The most notable study anti-tax advocates point to is one by Dr. Richard Vedder, Taxation and Migration. Dr. Vedder, a Distinguished Professor of Economics at Ohio University, claims to show, through a statistical method known as regression analysis, that people move in part because of taxes. Dr. Vedder’s math and methodology is highly questionable and misleading. For example, Dr. Vedder’s own analysis shows that as a state’s economy grows, people move away. Dr. Vedder’s response to this particular finding is "mystifying" further stating that it "... in no way detracts from the basic finding of the analysis, namely that people avoid high tax areas". Actually, yeah, it does detract from the basic finding - it doesn’t make sense. Instead of exploring why his math shows that economic growth drives people away, he takes what he wants from the analysis to prove his argument and excuses what doesn’t prove his point as "mystifying". Furthermore, other than sunshine, union involvement and "mystifying" economic growth, Dr. Vedder fails to take into consideration a vast array of other measurable reasons people might move - overall cost of living, housing prices, amounts spent on public education, crime, access to the beach, access to an airport, access to a college, access to public transportation, etc ... Thankfully, two recent studies shine sound mathematical light on this issue.

The Iowa Legislative Services Agency recently published an Issue Review on taxpayer migration using IRS data and concluded that:

Internal Revenue Service state-to-state migration data indicate that differences in state income tax policy do not explain Iowa’s out-migration to those states, as both higher and lower income tax states around Iowa have similar or even greater relative losses than Iowa.

Additionally, a group out of Ohio, Policy Matters Ohio, just published a well thought out report on the subject and concluded that:

There is not a strong relationship between income taxes and migration in Ohio. Cutting or raising taxes has not had a direct impact on the number of filers entering or leaving Ohio. Ohioans go to states with a variety of income tax structures, and the same states that attract Ohioans tend to send people to this state.
The argument by anti-tax advocates that taxes cause migration, however significant, is just not supported by the data. Like forcing a square peg into a round hole, Dr. Vedder and other anti-tax advocates are just trying to force an argument that doesn’t fit the data.


At 10:05 AM, Anonymous squarestater said...

Yeah, I've been trying to figure out why people have been leaving high tax New York and heading to Wyoming. Oh wait, that's not happening is it... The flip-side of this is how states should give corps free reign because that's how they make their location decisions (instead of say, educated work force, quality of life, access to markets, which companies really don't care about).

Beware the STAMP model.

At 11:11 AM, Blogger Casey said...

If I remember correctly, the STAMP assumes "free" money in that it assumes you can cut taxes without cutting services. Sadly, I must have missed that lesson in my econ classes.

At 2:11 PM, Anonymous squarestater said...

Yeah, the STAMP model is an ingenious creation that says if you eliminate all taxes, you're economy will add a gazillion jobs. The good thing is that you don't find it in many respectable analyses. The sad thing is that legislators don't always rely on respectable analyses. (I think ALEC likes the Stamp model but I may be mistaken). As I recall, it is Vedder's model.


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