Steve Coker, CFP
Americans are moving to low-tax states
If you live in California like me, it is probably no surprise to hear that people are leaving the state. It seems like every month a friend or neighbor announces a move. According to U-Haul data, California and Illinois are the top states with ‘one-way’ rentals, implying that residents of those states are getting out. U.S. Census Bureau data is similar, which shows 10 states with the highest population declines, even after considering international immigration, are New York, Illinois, Louisiana, West Virginia, Oregon, California, Hawaii, Mississippi, Pennsylvania, and Rhode Island. Conversely, the states with the highest population gains are Florida, South Carolina, Texas, Idaho, Montana, South Dakota, Utah, Arizona, Delaware, and North Carolina. When you compare the tax rates of these states a clear pattern emerges. Americans are moving to low-tax states.
California holds the distinction as the state with the highest top marginal individual income tax rate at 13.3%, followed by Hawaii at 11%, New York at 10.9%, and Oregon at 9.9%. All four of these high tax states showed population declines in 2022. In contrast, the states with comparatively low tax rates saw the largest population increases. Florida and Texas, which saw the large population gains, have no income tax. South Carolina and Idaho, other big gainers, have tax rates well below average.
It seems clear that Americans are migrating to lower tax states, but does it matter? As a Californian, I am concerned. This type of migration impacts future property values, economic growth, business prospects, and the tax base. Even worse, IRS data shows that taxpayers with higher income, those with $200,000 or more of Adjusted Gross Income, were more likely to move to states with no or low income tax. Even those who do not intentionally move to a lower tax state may choose a low tax state indirectly due to stronger job prospects and growth.
If you want to know how each state stacks-up when it comes to tax burden, a great resource is the state comparison tool at taxfoundation.org Facts & Figures | How Does Your State Compare? | Tax Foundation.