Tax Rates and Migration
August 18, 2011
Researchers Antony Davies and John Pulito of the Mercatus Center explore the relationship between high-income tax rates and the interstate migration of high-income households. Controlling for property-tax rates, sales tax rates, high-income tax brackets, unemployment and state/county-specific and time-specific effects, they find:
- Higher state income tax rates cause a net out-migration not only of higher income residents, but of residents in general.
- For county-level data, they find that high-income households react to a lowering of income levels to which higher tax rates apply in the same way that they react to increases in the tax rates themselves.
- This behavior suggests that the tendency to lower the threshold for "high income" or "millionaire" households to capture households that are not millionaires may entice those households to follow the behavior of millionaire households and flee to more tax-friendly environs.
- Finally, for state-level data, the effect of property taxes on migration is significantly stronger than the effect of high-income tax rates on migration.
All of these data suggest a recipe for population depletion. States lose households to more tax-friendly states by (1) lowering the "high-income" threshold so as to capture more households, (2) increasing high-income tax rates, and (3) increasing property-tax rates.
Source: Antony Davies and John Pulito, "Tax rates and migration," Mercatus Center, August 2011.
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