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US households moving to freer, lower-tax places

January 30, 2020

U.S. Supreme Court justice Louis Brandeis coined the phrase “laboratories of democracy” when describing states. In more than a few states, some of the lab rats appear to have had enough.

The Internal Revenue Service (IRS) “Statistics of Income” division produces an annual report with valuable information for understanding interstate migration trends. The latest report was issued in early 2020, covering the latest available tax year (2018). 

The IRS migration data program collects individual income tax filings and allocates them into “same state,” “outflow” and “inflow” return categories, which are then organized by age group and income level. “Same state” returns are the returns where a household filed in the same state as the previous year. “Outflow” returns are returns for households that moved out of that state from the previous year, and “inflow” returns are for households that moved into the state.

Net migration statistics can be calculated for every state, for example, by subtracting the number of outflow returns from inflow returns, and calculating net migration by dividing the difference by the total number of returns. This works to common-size the states.

  • The 15 states with the highest net inmigration in 2018, on this measure, were (in order) Nevada, Idaho, Arizona, South Carolina, Colorado, Delaware, North Carolina, Oregon, Washington, Florida, Tennessee, Maine, Georgia, Montana, and New Hampshire.  
  • The 15 states with the highest net outmigration in 2018, on this measure, were (in order) New York, Illinois, Connecticut, North Dakota, Louisiana, New Jersey, Massachusetts, Kansas, West Virginia, California, Mississippi, Wyoming, Maryland, Nebraska, and Rhode Island.  

Four of the 15 states with high net outmigration in 2018 were states impacted significantly by energy market developments, following on the heels of a significant drop in oil prices. So, for the purposes of comparing these two groups of states, Wyoming, Louisiana, North Dakota and West Virginia are considered special cases and excluded from the “high outmigration” states.

What characterizes the high inmigration states? How do they differ from the high outmigration states?

In a review of a variety of economic, demographic and financial factors for these 26 states, five factors stand out for how different inmigration states are from outmigration states.  

  1. WalletHub’s Tax Burden
  2. Cato Institute Freedom Ranking
  3. Balanced Budget Frequency
  4. Lawyers per 10,000 Residents
  5. Truth in Accounting’s Taxpayer Burden

One other factor also stands out, but the inmigration states don’t differ much from the outmigration states on this score. That is the Winter Average Temperature for the states, as calculated by the National Oceanic and Atmosphere Administration (NOAA). You can’t blame bad winters alone for outmigration, it looks like, at least for 2018.

Let’s look at the tendencies for those five significant factors identified in the table above.

WalletHub Tax Burden. WalletHub ranks the states on their estimate of total annual taxes paid for sales, property, and income taxes, expressing the result as a share of total state personal income. High IRS outflow states tend to rank lower (have higher tax burdens) than high IRS inflow states. 

Cato Institute Freedom Ranking. Cato Institute ranks the states on “freedom” using an index based on a variety of metrics relating to fiscal policy, regulatory policy, economic factors, legal environment, education policy, health insurance and other factors. Higher inflow states rank higher on Cato’s freedom ranking than the high outmigration state.

Balanced Budget Frequency. 49 of the 50 states have some form of balanced budget requirement, but they vary significantly in how legally compelling there are. There are words and there are deeds, and the proof is in the pudding not in the budgets, but in the audited results released after the end of the year. As a general rule, states that report accrual expenses below accrual revenue tend to be in much better shape, financially. And the high inflow states tend to have significantly higher frequencies of truly “balancing the budget.”

Lawyers per 10,000 Residents. This ranking is done using data reported by the American Bar Association (ABA). The ABA reports the number of lawyers “active and resident” in the state, and reports that number per 10,000 residents. Higher inflow states on IRS migration tend to have fewer lawyers per capita. 

TIA Taxpayer Burden. Truth in Accounting calculates a different measure of Taxpayer Burden, which is the per-taxpayer share of unfunded state government debt. Higher outflow states tend to rank lower (and have higher) Taxpayer Burdens.


Bottom line, in 2018, states attracting greater inmigration tend to be freer, lower-tax jurisdictions with governments that do a better job of responsibly managing their finances.


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