Leaving state to avoid taxes is ‘a myth,’ study says

Print More

By Len Lazarick

Pennsylvania welcomes you sign

By paulhami Creative Commons

Higher state taxes don’t lead many residents to leave a state, including affluent taxpayers, a new study says.

The report by the Center on Budget and Policy Priorities released Thursday uses several economic studies from academics and think-tanks to debunk the arguments that taxes drive people from states like Maryland, particularly the wealthy.

“Compelling evidence shows that this claim is false,” the report says. “The effect of tax increases on migration are, at most, small – so small that states that raise revenue income taxes on the most affluent households can be assured of a substantial net gain in revenue.”

Why don’t taxes make people move?

The report cites four main reasons that “tax flight is a myth.”

? One, “migration is not common. Most people have strong ties to their current state, such as job, home, family, friends and community.” Contrary to the impression of a society on the move, only about 30% of native-born Americans change their state of residence over the course of their life.

? “The migration that’s occurring is much more likely to be driven by cheaper housing than by lower taxes.” The difference between housing costs in two different states is often many times greater than the difference in taxes. This is similar to a conclusion reached by a state planning department study of Census data of people who moved from Maryland to Pennsylvania and West Virginia.

This also helps explain the growth in Florida. It has no income taxes, but as housing prices spiked it began losing population in 2008 and 2009.

? “Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value.”

? “Recent research shows income tax increases cause little or no interstate migration…. While a few affluent households might leave a state because their income taxes are increased, the vast majority stay, and states gain a significant net increase in revenue to help support important services.”

The report highlights Maryland’s millionaire’s surcharge that expired last year.

The comptroller’s office reported that the number of millionaires declined in Maryland in 2008 and 2009. “But an examination of actual tax return data shows that the vast majority of this decline occurred not because people moved out of the state, but because their incomes fell below the $1 million mark due to the recession and stock market crash; they remained on the tax rolls, but in a lower tax bracket,” the report says.

The report does not deal with the issue of whether high tax rates in general would lead people to favor one state over another with lower rates, preferring Virginia to Maryland, for instance.

Jon Shore, one of the co-authors, said the report shows in general that “people don’t move because of taxes.”

As to business decisions to locate operations in one state versus another, “there’s plenty of literature that show taxes are a small part of businesses’ costs. Even businesses don’t make decisions overwhelmingly on tax rates,” Shore said.

The study dealt with only tax rates, and did not touch issues relating to the regulatory environment, which is part of business decision to locate or leave.

Maryland has been pummeled by the Wall Street Journal, the Washington Examiner and others for high taxes and their effect on the departure of the affluent.

“It’s in dispute rhetorically,” Shore said, a former reporter and head of a New Jersey think tank. “It’s not in dispute factually.”

“The debate gets shaped by the people who oppose these taxes,” Shore said. “Among the experts, there’s really not a great debate.”

An emotional disagreement

On Tuesday, MarylandReporter.com blogged about the e-mails to a conservative Republican delegate on plans to move if taxes were raised.

The story elicited an e-mail from a former government worker in staunchly Republican Western Maryland. He said:

“I was born in Cumberland, Maryland. My family was born in Maryland. Except for 10 years, I have worked and lived in Maryland.  I am now within two weeks of moving to South Carolina. We are building a house. The taxes in South Carolina are 1/2 of Maryland. Regulations are minimal.

My wife is a life-long Marylander as well. We can’t wait to get out of the “Fee State”.

“Maryland has been run by Democrats for decades.  The taxes and spending are never ending. How does it stop? WE ARE MOVING!  Taking my 457 retirement money, taking my retirement money I earned as a worker for local government for 30 years. I won’t spend another dime in that hell hole of unending needless regulation and control by the state and local governments.  Goodbye and good riddance!

“I am trying to convince all my family members to move out of Maryland, come south with me or just go anywhere but leave Maryland while you can! I am sure a tax is coming for those who want to move out, watch for it!”

The study says differently, but economic studies are lifeless compared to the emotional voices of personal choice.