State Tax Increases Don’t Lead to Migration

States can raise taxes to generate much needed revenue and close state budget gaps without worrying about whether its citizens will move to other states as a result. A new report issued last week by the Center on Budget and Policy Priorities debunks the claim that increasing taxes will lead to mass out migration by residents, including higher income taxpayers (the claim has also been used by some to justify the need to cut taxes for the wealthy in states such as Arkansas).  The effect of raising taxes on state out migration is very small.  When new revenue is needed to close a state budget gap, states can increase income tax rates on higher income citizens, for example, and see a substantial net increase in new revenue.

A family’s decision to move, regardless of income level, is a lot more complicated than just tax rates.

  • Migration is not common due to tax changes. – People relocate primarily for new jobs, cheaper housing, or a better climate.
  • Migration is more likely to be caused by lower housing prices elsewhere. – Housing cost differences between two states are usually a lot greater than differences in state tax rates.
  • Lower taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants look for when moving. – Available amenities that are paid for by tax dollars play a much bigger role in someone’s decision to move than tax rates.

Additional research has shown that the most important factors that keep people from relocating have an even greater influence among higher-than-average earners.

  • Family Structure – married couples are more likely to have higher incomes and are more likely to migrate only if both spouses can find jobs. Once they’ve found a place like this, they are less likely to move to a new place that would make changes to this stability.
  • Homeownership – People that earn more are more likely to own their home, which also makes moving more costly and time consuming.
  • Age – People ages 18 to 24 are more likely to relocate than older individuals and families.
  • Employment Status – data has shown that the unemployed are four times more likely to move from one state to another than those who are employed.

Finally, while a small number of rich residents might leave a state if their tax rates change, most have strong ties to their community and state that anchors them in one place.

  • Many higher income residents are community leaders with a long history of being involved.
  • There is also a high probability that this group of Arkansans have lots of friends and family living nearby that they would not want to leave.

The decision to relocate is complicated and involves many different factors, nearly all of which are more important than state income tax rates.  The unfounded fear of outmigration should not keep Arkansas policymakers from working toward a balanced approach – one that includes both raising new revenue and reasonable strategies to control programs costs — to close our state budget gap and ensure adequate funding for services and programs that are important to the well being of Arkansas children and families.