October 09, 2006

Three Studies Debunk Tax Migration Myths

In recent years some have tried to link state tax policy and migration flows between states. Americans for Tax Reform (ATR) claims that in the late 1990's "migration flows began to accelerate as higher-income taxpayers and an aging population moved to lower-tax jurisdictions." ATR claims that the elderly and the higher income will basically move solely to take advantage of a state’s tax climate. A simplified version of their theory goes something like this: people living in the 41 states with broad based income taxes are in a great big hurry to move to states without income taxes like New Hampshire, Alaska, Florida, Nevada, Wyoming, Washington, South Dakota, Tennessee, and Texas.

On its surface this seems like a pretty silly argument. Do people really think about tax structures before they pick up and move to another state? Don't family relationships, job availability, climate and proximity to adequate health care impact migration more?

Three very interesting studies from the Iowa Policy Project, New Jersey Policy Perspective, and Policy Matters Ohio debunk the "tax structure causes moving" myths. If state legislators decide to cut taxes (or not increase taxes) in order to attract new residents they are making incredibly poor public policy decisions.

Policymakers concerned about their state's population growth, would be better off to invest in state parks, libraries, education, and health care instead of cutting taxes.


At 7:41 PM, Blogger LVT Fan said...

I suspect that as the pig-in-the-python baby boom generation retires, we are going to see an urban-to-rural migration, as people who have accumulated relatively little in retirement assets, but do have some home equity -- more precisely, appreciation in land values from living in some of our most vibrant cities or their surrounding suburbs -- sell out and move to areas with far fewer amenities.

They're going to arrive expecting that their new neighborhoods will offer the same services that their former hometowns provided, and that their home equity will be sufficient to allow them to pay cash for a home in this less expensive area, and then to pay property taxe there during their retirements. But will those more rural places be prepared to offer the services they expect? I'm not so sure.

They will drive up land prices in these towns. Who will benefit? Those who currently hold land, and are curently paying low property taxes on it. And they didn't have to lift a finger ... we the people made them wealthy.

At 2:59 PM, Blogger LTRBTB said...

I think the author is overstating ATR's thesis. ATR is pointing out the fact that there is a correlation between low-tax states in interstate migration.

Using this FACT, they are saying that the lower taxes of the destination states serve as a magnet. They are not saying this is the determinative factor--it is a significant one of many.

I can tell you as someone who lives in Northern VA and prepares taxes that people take taxes into account all the time when deciding on living in MD, DC, or VA.

At 3:12 PM, Blogger wilbur said...

The fine folks at ATR aren't presenting low taxes as one of a vast array of parameters that might affect migration. They're asserting that it's a big one. Playing up the correlation between low taxes and migration patterns amounts to arguing in favor of a theory. If ATR played up the correlation between the much larger array of things that plausibly affect migration choices-- quality schools, # of rainy days a year, prevalence of natural disasters--and migration choices, that would be a bit more objective of them. But that's not what they're doing.
Put another way, it's giving ATR way too much credit to say they're just pointing out a "fact," because they're clearly NOT pointing out a bunch of other "facts". They're singling one particular explanation out.
Anecdotally we can all identify folks who have made living decisions for different reasons. A friend of mine just moved his whole family to Colorado because it's better for cycling. The question is, what do these anecdotes add up to-- and neither ATR nor anyone else has told a statistically convincing story that taxes play a substantial role in the aggregate.


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