The Tax Foundation is a well-respected research organization that has monitored federal and state tax levels since 1937. Its recent study of taxpayer migration between states is a fascinating look at which states are gaining or losing taxpayers and why. It also reports how much taxable income those taxpayers take with them.
The study covers years 2000 to 2010 and measures so-called domestic migration between states. A state’s population changes in three ways: births vs. deaths, foreign immigration and domestic migration.
The Tax Foundation’s report only measures domestic migration — each state’s net gain or loss as American citizens move from state to state within the U.S. It also measures only those migrating Americans who filed federal income tax returns.
By tracking each taxpayer’s Social Security number, the IRS can tell where we’ve moved and how much taxable income we took with us. The Tax Foundation’s report is based on this IRS data.
But, please keep in mind that this is a study of taxpayer migration shifts, not population shifts. Here’s a good example of the difference.
From 2000 to 2010 Maryland’s combined population increased 9 percent to 5,773,552. But, during the same period, Maryland suffered a net 66,000 loss of U.S. citizens who moved to other states and took $5.5 billion in taxable income with them.
How could Maryland’s total population increase by 477,000 while its domestic population suffered a net 66,000 loss? Because the state’s outflow of U.S. citizens to other states was masked by a net gain of births over deaths and by a huge inflow of foreign immigrants.
During the 10-year period, 1,335,104 U.S. citizens migrated to Maryland from other states, but 1,401,377 U.S. citizens left Maryland for other states, the nation’s 10th worst domestic population loss.
And, while the folks moving here brought in $41.28 billion of taxable income, the folks leaving took with them $46.78 billion, a net taxable income loss of $5.5 billion, the nation’s eighth worst decline.
By either measure, Maryland is a “loser state.” New York is the nation’s top loser state, a net loss to other states of 1.2 million residents and $45.6 billion in taxable income. The other loser states, in descending order, are California, Illinois, New Jersey, Ohio, Michigan, Massachusetts and Maryland.
Conversely, the top winner states in descending order are Florida, Arizona, Texas, North Carolina, Nevada, South Carolina, Washington and Colorado.
People move for a host of reasons: retirement, looking for work, cheaper housing, lower cost-of-living, better economy, health needs and so on. But, generally, they all seek the same thing — a better quality of life.
Clearly, millions of Americans voted with their feet against the loser states and their diminished quality of life.
And it’s no coincidence that the top loser states are big government, big spending, big taxing states compared to the top winner states.
For instance, six of the top 10 loser states are also the nation’s highest per capita tax burden states. (New York, No. 1; New Jersey, No. 2; California, No. 4; Massachusetts, No. 8; Illinois, No. 11; and Maryland, No. 12). Meanwhile, six of the top 10 winner states are the nation’s lowest per capita tax burden states (Texas, No. 45; Nevada, No. 42; South Carolina, No. 41; Arizona, No. 40; Colorado, No. 32; and Washington, No. 28).
And it’s no coincidence that the top loser states have some of the nation’s highest income tax rates while four of the top winner states (Florida, Texas, Nevada and Washington) have no state income tax at all.
Focusing on Maryland tells us even more. In descending order, here’s where Marylanders fled from 2000 to 2010: 41,988 went to Florida, Pennsylvania (40,228), North Carolina (26,357), Virginia (15,553), West Virginia (21,149), South Carolina (12,031) and Delaware (11,822).
The exodus to Florida and the Carolinas is partially due to retirements but also because an increasing number of Maryland taxpayers are establishing out-of-state residency to escape Maryland’s elevated income taxes. A local wealth manager recently told me that 60 percent of his clients have established Florida residency (Florida has no income tax).
But many of the 88,752 Marylanders who’ve fled to Maryland’s adjoining states (Pennsylvania, Virginia, West Virginia and Delaware) are, as highway traffic patterns indicate, refugees still commuting to their jobs in Maryland.
Delaware has no sales tax and Maryland is one of only two states that levies both an estate tax and an inheritance tax (Virginia, West Virginia, South Carolina and Florida have neither). Don’t buy in Maryland and, for your children’s sake, don’t die in Maryland.
The rate of Marylanders moving to Virginia, Pennsylvania and North Carolina accelerated over the end of the decade but leveled-out for Delaware and West Virginia. And, interestingly, the number of Marylanders moving to Florida dramatically declined in 2009 and 2010, probably due to the recession’s impact on retirements.
Finally, let’s look at which states lost people and wealth to Maryland. By far, the top “donor state” was Washington, D.C. More than 63,000 D.C. residents moved to Maryland, mostly during the first half of the decade.
The next highest donor states to Maryland, in descending order, were New York (30,446), New Jersey (17,555), Michigan (5,488) and Illinois (3,597). That’s right, people fled here mostly from other loser states that made Maryland’s federal job market look good by comparison!
As you’ve probably noticed, the top loser states are solidly Democratic Blue states while the winner states are mostly Red states. To cure this embarrassment, the IRS last year canceled its tax migration data gathering but, after a strong protest, restored it, for now.
Apparently, some folks don’t like the political conclusions that following the money suggests.
Blair Lee is chairman of the board of Lee Development Group in Silver Spring and a regular commentator for WBAL radio. His column appears Fridays in the Business Gazette. His past columns are available at www.gazette.net/blairlee. His email address is firstname.lastname@example.org.