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

August 05, 2011 at 6:56 am

By Len Lazarick
Len@MarylandReporter.com

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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.

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  • Gordon Shumway

    The study is accurate and there are several others supporting it.  The anecdotal, and self serving whining of modern Marie Antoinettes (and Louis XVI’s) doesn’t change the facts.

    • Optiprez1

      My wife and I are Maryland natives.  We have been very fortunate.  We are seriously considering moving out of Maryland, as soon as our son graduates high shcool next year.  The 6% state income tax rate, coupled with the county piggy-back tax (for a total of 9%) is far more than other states are charging for the same services.  Maryland is an inefficient state (taxwise), and we have every intention of finding a more tax-friendly state.  We paid more than $500K in MD/County taxes last year, and our advisors are pressing us to move out of Maryland.  There are nice neighborhoods and friendly people in non-Maryland states too!

      • Just saying

        I am pleased that your son got a good education in the state of Maryland,

        • http://pulse.yahoo.com/_PW633UTQFW2L2IBW65IM6CDAMU john brown

          education is getting harder to get with all the crying teachers, the waste of time spent pushing the eco crap, not to mention the slow pace set by guato/mexican kids

          • ppppppttttt

            Actually, YOUR kids are slowing my Asian boy down.

    • Alf

      Alf – Who paid for the study?
      Those moving out of state aren’t calling the governor’s office or some survey company and saying “I can’t stay here any longer because the tax burden is too much and your spending is out of control – they are moving and using the savings to educate their children and having more discretionary income to spend to enjoy their lives. For fixed income people and Seniors – it is taxes versus meds and food. Others are leaving because there are no jobs being generated and don’t get me started about businesses small and large who are looking to save taxes and regulation costs. Many see Texas’ environment as a lot healthier financially and regulation-wise.

      So lets really think this through – this study was extrapolated from a bunch of studies that were done for other purposes and some ANALyst made some assumptions and reported the less than accurate findings to a technical writer who gussied them all up to reflect the opinions of the funding agency. You serve the master that pays you.

      We all know the truth but we think the government knows more because they have fancy educations. Get your head out of your anal oriffice and start thinking for yourselves – then our country will have a return to common sense and the Constitution just as the Founders planned it.

  • Dee Hodges

    Yes, people buy houses where they are less expensive.  This partially explains growth of the suburbs and outer Maryland counties.  However, a claim that higher taxes don’t influence people to leave a state reminds me of an ostrich with its head in the sand.  Decades of gradual out migration by great Fortune 500 companies due to Maryland’s anti-business policies, onerous regulation and high taxes, give the lie to the Center’s claim.  I heard it explained by someone testifying against taxes this past legislative session in the Ways and Means Committee.  He indicated that a company wouldn’t leave immediately.  Rather, it would not expand new lines of product in the state or modernize its facilities, but go elsewhere.  Finally, after trimming down it would close its doors.  The evidence is in the names:  Campbell Soup, GM, Western Digital, Fairchild Defense, CSX, just to name a few.  And anecdotally, how many people are we all acquainted with  who have moved or plan to move to states like Florida once they retire?  Dee Hodges, President, Maryland Taxpayers Association

    • Mark Gaver

      You have hit the nail on the head.  I am a tenth generation Marylander, my wife is the eighth generation from her family, primarily because of the Maryland Millionaire tax we moved to Florida in 2010 and changed our residence.  Before the end of 2011 we will move our business to Florida as well. Florida can’t wait to get the seventy-four hitech jobs that this move will bring.  Maryland could care less.  The elected officials in Maryland just don’t get it.  Most of them have never owned a business much less created a job.

  • Anonymous

    Studies like polls can be artfully manipulated to meet the required outcome, i.e. supporting the Democratic agenda in Annapolis. The narrow focus of this study will be used to bolster the tax hiking agenda of the Gov & state legislature. Far from the whining rich, these heavy handed unfriendly “tax & fee ‘em high ’cause we need the money” policies result in less $$ in the pockets of average MD households. Far from being personal choice, moving out of MD is becoming an economic necessity.   

    • MDMikeNowPAMike

      the folks on fixed incomes can’t afford to stay in MD.  the housing in lower PA across the line is full of commuters and MD retirees.

      • Anonymous

        As one who is approaching the”golden years” I believe that they will not be spent in MD. So many other states are more retiree friendly than MD. As soon as the housing market begins to pick up, I think the exodus of retirees will only increase.

  • Cynthiasand

    Will the “former government worker” be willing to personally fund new bridges, trash removal and snow plowing? Can I drop my trash off at his house? Did the “former government worker” enjoy being paid by my income taxes. I am proud to pay taxes and support my community.    

  • Dave Willemain

    What regulations would the western Maryland emailer have abolished? Would he prefer that building codes, traffic regulation and environmental regs be abolished? How would that benefit our quality of life?

    • http://pulse.yahoo.com/_PW633UTQFW2L2IBW65IM6CDAMU john brown

      VEIP for one the people that work their are a waste

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  • sarah

    I don’t know where Md’s Think tank gets all of their information? If I had to guess it would be from those liberal wealthy democrats that are on the dole or take. Either way they are not living in the real world. My husband has been a life long Maryland resident and I’ve been here 40 plus years and we can’t wait to leave and take our business with us. Why would we leave such  beautiful state you ask? Because of all the fees, taxes and nonsense that goes on here. When you raised the tax on my wine to 9% to support stuff that should be self supporting that was the last straw. And lets not forget the recent threats to raise all of the tolls on our highways surrounding us to fund a project somewhere else. Transportation here is such a joke. I use to support the light rail system because I worked down town and it made sense to save fuel and leave the driving to someone else, so I didn’t mind paying. But what I couldn’t get was the continual disregard by the local population to not pay the fare. This is just one more example of where the Middle working class pay but the other half don’t. If Maryland continues to tax those that have something and lets those that choose to live off us pay nothing this state will join the ranks of states that are bankrupt. I am tired of supporting dead beats and illegal’s that don’t pay a dime.
     
    You may be right, Its not the excessive taxes that are driving me from my home but the manner in which you take taxes & fees but the lame excuses you use to justify them. Common sense should tell you that 35 – to 45% of tax payers can not continue to support the 55 – 65% of those that don’t pay taxes.

    Sarah, tired & leaving Md.

    • Anonymous

      Sarah, we all know studies & polls can easily be manipulated with the results cherry picked to support various views of the situation. In my travels across my home state, I find a fundamental disconnect between those that supposedly lead us & those who are paying the bills. Anyone who looks a little deeper at MD politics can readily see that a majority of taxpayers, from Western MD to OC, are sick & tired off Annapolis spending that focuses on certain jurisdictions to the exclusion of others. Anyone with half a brain understands that you cannot continually go to the taxpayers, especially during a severe recession, with increases in sales & alcohol taxes, higher tolls, higher fees on a variety of items, plus intimate a rise in gas taxes & adding more services to sales tax collection list. Not to mention that MD’s business climate is nearsightedly focused on keeping Fed supported jobs & forgetting the private sector. As one who is rapidly approaching fogeydom, I am seriously looking at moving to a more friendly state. One that appreciates my tax contributions while leaving me with enough to support the local economy.

  • http://pulse.yahoo.com/_PW633UTQFW2L2IBW65IM6CDAMU john brown

    from the eastern shore of maryland:

    If the studies are true why is my farm now surrounded by people from new jersey who are flee high taxes.

  • Diehard

    Hilarious! Fraudulent study! Check the growth rate of Shrewsbury, PA and northern VA. Duh…

  • Nicole L

    To all the posters saying that this was a set up by the Governor/Legislature in Annapolis: The Center for Budget and Policy priorities is a NATIONAL think tank based in DC. The study looked at income taxes and their effect on migration for the entire country, not just Maryland, although they did use the 2009-2010 millionaires tax as a case study.

    • Anonymous

      Check your facts. The CBPP is a think tank that has advocated for the poor for more than 25 years. Try wiki next time & follow the trail. Sunshine is the best disinfectant.

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  • Wefiedler

    Well, I guess all of the folks I know who have retired to Delaware must not have read the study. All I hear from them is about the “low” taxes over there. Oh, they still have access to the grand children in Maryland.

    Maryland should be attracting retirees not repelling them.

    I

  • Dthompson

    I finally sold my house, and I can’t wait to get out of town. We are moving to South Carolina and also will live in Delaware, 2 very retiree friendly states. Maryland taxes and politics are out of control. The Dream Act and the Gay Marriage Act as well the myriad of taxes proposed during the 2012 session were the last straw for us.I was born and raised in Maryland, but I will not miss it for one minute. I have no desire to return.  

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  • B.D.

    You are commenting on only one report that is heavily biased to the ‘left’.  Common sense dictates that an individual will generally go where the cost of living, which includes state taxes, is lower, given the opportunity to do so.  I was a Maryland resident for about 18 years before getting out, escaping.  That is the term most expatriates use to describe their exodus from Maryland.  

  • Jessie M

    I know dozens of people who have left Maryland due to high taxes, and they are not millionaires. I know one company that pulled up roots and moved to Va due to high taxes. Maryland is the 8th highest-taxed state in the county, perhaps because they have to support so many welfare people. Look at the welfare city of Crisfield. Grant money and more grant money gets funneled into the projects where druggies and gangsters live. The city was a ghost town before Sandy and yet they are getting 8 million dollars to do what? Renovate a ghost town who residents are responsible for their own demise. The sad part is that everyone pays for welfare towns like Criafield, not just the residents of the state. Still, getting out of Maryland can help keep more of your money in your own pocket. More people are planning their escapes; Maryland may soon be a ghost town, too.