Study: High-Tax States Losing Power to Pro-Growth States

Published October 13, 2014

Contrary to common claims that people prefer moving to high-tax states because of accompanying high levels of government services, data compiled by the Internal Revenue Service and from experts with the American Legislative Exchange Council (ALEC) show years of tax migration have resulted in a decrease in the political power of states with high tax rates.

Among the findings of American Legislative Exchange Council’s (ALEC) Laffer State Economic Competitive Index, published this year, more than 200,000 people left each Northeastern state between 2003 and 2012. Southeastern states experienced an average net population gain of about 300,000 people. 

As the assignment of seats in the U.S. House of Representatives is tied to states’ population, the political influence of high-tax states contracted in favor of pro-growth states elsewhere. Northeastern and Midwestern states suffered the most. New York and Ohio each lost two seats, and eight other states’ delegations each lost one member.

Eleven states between Maine and Pennsylvania were represented by a total of 141 delegates in 1950, but they are now represented by 85 members of Congress, a 40 percent decrease in proportional representation.

Power Shifts

Southern and Western states gained the most representation, as a consequence of those states’ respective pro-growth policies. Texas’s influence in the House of Representatives grew with the addition of four delegates. Florida added two Congressional delegates, and Arizona, Nevada, Utah, South Carolina, and Georgia each gained an additional seat at the table.

Data from the IRS help illuminate the reasons behind the shifting migratory patterns of taxpayers. Between 1995 and 2010, an analysis of 134 million taxpayer records shows $2 trillion in net adjusted gross income (AGI), along with the taxpayers themselves, flowed from states with high taxes to those with low taxes.

These migratory patterns take a toll on states with high taxes. New York, for example, lost $58.6 billion in tax revenue during this period, along with talent, wealth, and business prowess that cannot be quantified.

Tale of Two States

Between 1990 and 2013, the number of jobs in the United States increased by 25.3 percent, but the increase in New York state was only 8.2 percent. Florida’s growth, by contrast, far outpaced the national average, as the state increased its job count by 42.6 percent.

New York ranks has the nation’s second-highest state and local tax burden, a progressive system where individuals can be taxed as high as 12.7 percent and corporations are taxed at 17.16 percent. Florida, by contrast, has no individual income tax and a corporate tax of just 5.5 percent, and taxpayers and businesses have flocked to the Sunshine State over the years.

After studying data compiled by the IRS and the National Bureau of Economic Research (NBER), the New Jersey Department of the Treasury in 2011 concluded “there has been a small but consistent outflow of population and wealth from the Northeast region to the South since the 1980s,” noting, “outmigration associated with higher income taxes will likely diminish other streams of state revenue, such as corporate tax, sales tax, and property tax, as well as degrade a state’s overall economic performance, in turn associated with further out-migration.”

Alexander Anton ([email protected] ) writes from Palatine, Illinois.

Internet Info:

“The Effects of Marginal Tax Rates on Interstate Migration in the U.S.,” New Jersey Department of the Treasury: