New Report, Same Result—High-Tax States Lose Residents, Low-Tax States Gain Them

The number of movers in the United States has been declining since the mid-1980s, but millions of people still move each year. A new report from the National Taxpayers Union Foundation shows that low-tax states have been gaining residents while high-tax states have been losing them, and that this migration is impacting state revenues.

According to the report by Andrew Wilford, from 2011 to 2021 Florida gained the most residents, adding 1,591,626 people from other states. Texas was second and added 1,268,227 new residents. These were the only states to gain more than one million people over this period.

Meanwhile, two states lost more than one million people: New York lost 1,757,720 and California lost 1,632,774. The map below shows the rank of each state according to the number of residents gained (or lost). Illinois, New Jersey, and Massachusetts also lost a substantial number of people, while North Carolina, Arizona, and South Carolina gained residents.

When people leave, they take their money with them. The nearly 1.6 million people who moved to Florida brought almost $196 billion of adjusted gross income (AGI) along with them. On the other hand, the 1.76 million people who left New York took just over $111 billion of AGI out of the state. The table below shows the top five and bottom five states in terms of net AGI and population growth from 2011 to 2021.

It is not a coincidence that on average the states that gained the most residents and AGI are lower tax states while those that lost residents and AGI are higher-tax states. The average top individual income tax rate in the top five gaining states was 4.1%. In the bottom five states it was 8.6%, or more than double. In the Tax Foundation’s more comprehensive ranking of state tax climates, New York, New Jersey, California, and Massachusetts all rank in the bottom 10, while Illinois ranks 37^th. Florida, Texas, North Carolina, and Arizona are all in the top 15. Among the top gainers, only South Carolina falls outside the top 15 at number 33. The states in the top five also have warmer weather than those in the bottom five, apart from California, and that certainly explains some of their appeal. But policies matter, too, and high taxes repel residents, especially higher earners.

State governments raise revenue through various taxes, including income taxes, sales taxes, and taxes on businesses. When money leaves the state, it cannot be taxed (for the most part, but more on that below), and all else equal this means less revenue for the government. Extrapolating from the migration data from 2011 to 2021, Wilford estimates the amount of revenue each state gains or loses due to residents coming or going. He estimates that outmigration from California costs the state $4.5 billion in revenue annually, while Florida gains $4.1 billion. Other Southern and Mountain states also gain revenue, as shown in the map below, while states on the West Coast and in the Midwest and Northeast regions of the country lose revenue.

Some states understand that taxes matter. Since 2021, 27 states have reduced the rate of at least one major tax, including Georgia, Idaho, and Utah. This is smart, since the evidence clearly shows that taxpayers generally prefer states with lower taxes.

Other states, however, are not getting the message. New York and California refuse to implement broad tax relief despite losing residents. Instead, they routinely try to impose taxes on out-of-state taxpayers and businesses to fill holes in their budgets. A few years ago, California and New York tried to get around the Interstate Income Act of 1959 by imposing tax obligations on out-of-state businesses that simply offered post-sale customer service via their website. California legislators have also introduced a wealth tax that would apply to high-wealth taxpayers, even those who leave the state for lower tax jurisdictions.

Instead of levying more taxes, high-tax states should fix their tax codes. They can lower their top individual income tax rates to encourage work and reduce their business taxes to encourage entrepreneurs to start and grow businesses. Moving to a flat income tax with only one rate is one way to make it easier for people to comply with the tax code, saving them time and money. Indiana, for example, has a flat rate of 3.05% and it plans to lower it to 2.9% by 2027. Compare that to California, which has 10 income tax brackets and a top rate of 13.3%. Ouch.

NTUF’s report is just the latest reminder that people do not like to pay taxes, especially when they do not see the benefits. States that keep taxes low while providing sufficient services and maintaining public safety will continue to attract residents. States that insist on high taxes will repel residents, especially wealthier ones who tend to be the most mobile. Losing people is bad—bad for growth, bad for government budgets, and bad for morale—and states that ignore the role taxes play in migration will find themselves in a bad place.