Tax Flight Is a Myth

Georgia has a favorable climate for business, but every month for the last 47 months, the unemployment rate in Georgia has been higher than the national average. And there is no indication that is about to change.

http://www.cbpp.org/cms/?fa=view&id=3556

By Robert Tannenwald, Jon Shure and Nicholas Johnson *

August 4, 2011

Executive Summary

Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states. The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false. The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.
Migration is not common. Most people have strong ties to their current state, such as job, home, family, friends, and community. On average, just 1.7 percent of U.S. residents moved from one state to another per year between 2001 and 2010, and only about 30 percent of those born in the United States change their state of residence over the course of their entire lifetime. And when people do relocate, a large body of scholarly evidence shows that they do so primarily for new jobs, cheaper housing, or a better climate. A person’s age, education, marital status, and a host of other factors also affect decisions about moving.

The migration that’s occurring is much more likely to be driven by cheaper housing than by lower taxes. A family might be able to cut its taxes by a few percentage points by moving from one state to another, but housing costs are far more variable. The difference between housing costs in two different states is often many times greater than the difference in taxes. So what might look like migration in search of lower taxes is really often migration for cheaper housing.

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Recent research shows income tax increases cause little or no interstate migration. ...

Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. ...

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