The Tax Man and the Moving Van: Fiscal Policy and State Population Shifts

Posted on May 24, 2004 | Type: Policy Report
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For America's Founders, a federalist system was paramount to protecting and enhancing the exercise of personal liberty. By making the jurisdictions to which people are subject smaller, federalism opens the door to numerous freedoms. Theoretically, someone who has grown frustrated with the actions of their state government may choose to relocate to a state whose policies they prefer. If, in actuality, citizens and businesses exercise their options in response to the policies state governments pursue, policymakers should be mindful of how their decisions may help or hinder the attraction and retention of residents.

This study examines U.S. Census data from 1995 to 2000 in an effort to determine if, and in response to which conditions, Americans take advantage of their liberty to relocate under a federalist system. Strong evidence suggests that people exercise their options by moving into states with low tax burdens and favorable business climates, and exiting states with high tax burdens, poor business climates, and higher relative costs of living.

Over the years examined, the 10 states with the lowest overall tax burdens (Alaska, New Hampshire, Delaware, Tennessee, Alabama, Texas, Florida, South Dakota, Nevada, and Colorado, respectively) enjoyed a total net gain of more than 1,300,000 residents resulting from across-state migration. The nine states and the District of Columbia with the highest total tax burdens suffered a total net loss of more than 1,700,000 residents as a result of migration. A regression analysis of the census data reveals that tax burdens, business climate, and cost of living strongly influenced millions of household decisions to move across state lines during the late 1990s. These inflows and outflows are significant enough to profoundly impact the political and economic strength of states.

Arizona policymakers should take heed. The state has long been a migration destination, especially for retirees, due to the relatively low cost of living, relatively low taxes, and favorable weather. The data show, however, that this longstanding trend is the result of policy decisions, which if reversed would seriously undermine the state's economy.

Read The Tax Man and the Moving Van here.

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