One of the popular myths that conservatives like to repeat is that the reason states lose jobs or have other economic turbulence is because business and “job creators” pick up and move to lower tax states. You can’t raise taxes, they say, everyone will leave!
Yeah… Not so much.
Recent research shows income tax increases cause little or no interstate migration. Perhaps the most carefully designed study to date on this issue concerned the potential migration impact of New Jersey’s 2004 tax increase on filers with incomes exceeding $500,000. It found that while the net out-migration rate of this income group accelerated after the tax increase went into effect, so did the net out-migration rate of filers with incomes between $200,000 and $500,000, and by virtually the same amount. At most, the authors estimated, 70 tax filers earning more than $500,000 might have left New Jersey between 2004 and 2007 because of the tax increase, costing the state an estimated $16.4 million in tax revenue. The revenue gain from the tax increase over those years was an estimated $3.77 billion, meaning that out-migration — if there was any at all — reduced the estimated revenue gain from the tax increase by a mere 0.4 percent.
In fact, states that cut taxes often see more flight than states that maintain a sustainable tax rate. Why? Because taxes are used to provide infrastructure that businesses need to thrive.
Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. Studies show that such amenities as cultural facilities, recreational opportunities, and good public services are powerful attractions for potential migrants. Many of those services are financed with tax dollars. Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants.
This is not to say that people never move. They do. Just not for the reasons that conservatives hold faith with.
The research does not, by and large, study the impact of taxes themselves on a household’s decision to migrate, but the insights it provides can help explain why taxes likely are only a minor part of the equation.
Once again, conservatives view the world as completely inverted from the way things really are.