A recent Wall Street Journal editorial packs up some loosely related facts and delivers a familiar conclusion — state income taxes motivate people to move.
But let's dig into those facts...
[Note: A slightly edited version of this is cross-posted at Across the Great Divide.]
The editorial, based primarily on a yearly report of inter-state shipping records from United Van Lines, says a record number of Americans moved to other states last year.
Without interviewing the departed, it's impossible to know the reasons for this outward migration. No doubt overall economic prospects, climate, quality of life and housing prices play a role.
Why people move
Well, yes, those are the reasons suggested by actual studies of migration. The Wall Street Journal didn’t interview the 212,917 departed represented in the shipper's data, but the Census Bureau does ask people why they move.
Between 2004 and 2005, for example, it counted more than 39 million changes of residence. Of the 15 million who moved at least one county away (it did not break out answers by inter-state moves), 90 percent gave reasons that were evenly split among work, family and housing.
It did not ask specifically whether people were fleeing taxes — or fleeing cooties, for that matter. So maybe some of those movers who said they moved to take new jobs, look for work, avoid crime, get married, move closer to family or find a better house were really basing their decision on the income tax rate.
By the way, Journal's alarming declaration that "a record eight million Americans — some 20,000 people every day — relocated to another state last year" fails to clarify that the "record" is due to population growth. The rate of about 2.6% relocations is midway between the rates from 2000 and 2005.
The editorial continues:
But one reason to conclude that taxes are also a motivator is because the eight states without an income tax are stealing talent from other states. They are Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, and each one gained in net domestic migrants. Each one except Florida — which has sky-high property taxes on new homesteaders — also ranked in the top 12 of destination states.
Why the numbers are deceptive
Before you swallow that, let's look at the actual number of households involved in those moves. That's important, because the United Van Lines report ranks its high-move states by the differential between inbound and outbound moves in each state — not whether there's a large number of moves.
Drilling down, we find those seven states in the “Top 12” destinations accounted for 37,302 inbound moves, but had a total net gain of only 5,772 households. Altogether, South Dakota, Wyoming and New Hampshire accounted for a grand total of 390 new households.
Hardly a groundswell.
Now, let's compare the eight states without an income tax to Minnesota, which ranked number 12 in per capita state and local taxes in 2007. Why, high-income-tax Minnesota had more inbound than outbound moves, too!
Suppose we look at inbound moves as a percent of state population to even out differences among different-sized states. Of the nine, Minnesota has the fourth best inbound ratio, behind Nevada, Washington and Wyoming. And more households moved into Minnesota in 2007 than Nevada and Wyoming combined.
The implication that low-tax states are “stealing talent” is not exactly borne out by the data. Another way to view it is that two states with good quality of life and a strong creative climate are attracting lots of talent, while two other states are drawing a few people with a real estate bubble and an oil and gas boom.
Higher income, less migration
But the Journal just can't help itself. It concludes with an ominous warning to state governments:
The people who tend to be the most mobile in American society are the educated and motivated — in other words, the tax-paying class. Tax them too much, and you'll soon find they aren't there to tax at all.
The highly mobile, well-off taxpayer sounds right, but it simply isn’t true. I’ve written about this before, so let’s look here at some new data.
The Census Bureau also tracks moves by income level. People with the lowest income are actually the most mobile, including those moving between states. Top-earning households — incomes above $75,000 — are the most stable, with only 9 percent changing residence in the prior year, compared to 19 percent at the bottom.
Why some trips cost more
Finally, let’s look at one more misdirection in the editorial, which sent readers to the U-Haul web site to see how much more it costs to rent a truck leaving a high-tax state for a low-tax state versus one going the other way.
King Banaian was skeptical but still fell for it, citing these examples:
A 26-foot truck from Minneapolis to Sioux Falls from U-Haul was $489, from Sioux Falls to Minneapolis $288. St. Cloud to Rapid City $880, Rapid City to St. Cloud $518.
Let’s help out the econ professor and the editorialists on this one.
First, most moves are local. Movers tracked by the Census Bureau stayed in-state by a ratio of at least 4 to 1, depending on the income group. Most moving equipment rented in a market stays there. In-town moves in Minneapolis are priced at 39 cents per mile vs. 49 cents in Sioux Falls, so let's dismiss any implication that the higher tax state starts out higher cost.
Second, sending units to another state is only desirable if there’s higher utilization at the destination.
I called U-Haul headquarters to ask about the interstate pricing discrepancy, and sure enough, they said they often discounted rates to encourage more equipment going back to cities where more moves occur.
Another view on this subject comes from Wendell Cox, a smart growth opponent, who says housing affordability is the problem.
He looked at the Census Bureau migration patterns and notes that high-tax states like California and New York have been high tax for decades, while exploding out-migration is a newer development.
He says the problem is high housing costs relative to income. Some high-cost locations like Las Vegas are able to attract inbound migration only because their housing is less expensive than neighboring California's.
Should states like Michigan be concerned about continuing to lose population? Certainly. Should Nevada be worried about whether the influx of new people are financially stable? Apparently.
But without better supporting evidence, don't buy any attempts to hang those troubles on taxes.
— Charlie Quimby