Debunking A Tax Myth

A new analysis from the Center for Budget & Policy Priorities finds that people move for jobs & housing, not to avoid taxes:

  • The migration that’s occurring is much more likely to be driven by cheaper housing than by lower taxes. A family might be able to cut its taxes by a few percentage points by moving from one state to another, but housing costs are far more variable. The difference between housing costs in two different states is often many times greater than the difference in taxes. So what might look like migration in search of lower taxes is really often migration for cheaper housing.Consider Florida, often claimed as a state that attracts households because of its low taxes (Florida has no income tax). In the latter half of the 2000s, the previously rapid influx of U.S. migrants into Florida slowed and then reversed — Florida actually started losing population. The state enacted no tax policy change that can explain this reversal. What did change was housing prices. Previously, the state’s lower housing prices had enabled Northeastern homeowners to increase their personal wealth by selling their pricey houses and purchasing a comparable or better home in Florida at a lower price. But housing prices in Florida rose sharply during the mid-2000s, narrowing opportunities for Northeasterners to “trade up” on their expensive homes. And consider California: its loss of households to other Western states is often ascribed to tax differentials, but — as this report shows — housing-cost differentials are typically much, much larger.
  • Recent research shows income tax increases cause little or no interstate migration. Perhaps the most carefully designed study to date on this issue concerned the potential migration impact of New Jersey’s 2004 tax increase on filers with incomes exceeding $500,000. It found that while the net out-migration rate of this income group accelerated after the tax increase went into effect, so did the net out-migration rate of filers with incomes between $200,000 and $500,000, and by virtually the same amount. At most, the authors estimated, 70 tax filers earning more than $500,000 might have left New Jersey between 2004 and 2007 because of the tax increase, costing the state an estimated $16.4 million in tax revenue. The revenue gain from the tax increase over those years was an estimated $3.77 billion, meaning that out-migration — if there was any at all — reduced the estimated revenue gain from the tax increase by a mere 0.4 percent.

More at the link, including rebuttals of Norquistian talking points.

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2 Responses to Debunking A Tax Myth

  1. dedc79 says:

    I am stunned at how often politicans and supposed “experts” are allowed to make statements like the one debunked above without even being asked to back it up with factual support.

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