Every year, people and their income move between states. They move for a number of reasons, but there’s ample evidence that cost of living and its relationship to tax burdens are a factor.
The Internal Revenue Service publishes data that shows the movement of income and people between the states by tracking federal “adjusted gross income” flows. A database, created by The Tax Foundation in Washington, D.C., lets the public compare states.
Arizona fares reasonably well. The state saw a net influx of about $2.89 billion in income since the start of the recession at the end of 2007 through the end of 2010. Perhaps not surprisingly, the largest chunk – just over 20%, or $688 million – came from people fleeing California. The next two biggest chunks came from the basket-case economies of Illinois ($380 million) and Michigan ($294 million). People clearly see Arizona as a better place to live and work than states with high tax burdens and winnowing job prospects.
But we are losing income to other states as well. The biggest out-migration of income for Arizona in that period ($170 million) went to Texas, a state that, along with Nevada and Colorado, grabbed more income from California than we did. The first two states have no income tax and the third has a flat income tax.
Taxes aren’t the only thing affecting migration. But they are one of the most direct tools state policymakers can use to influence job creation and economic opportunity. Arizona legislators can and should make the state attractive in as many ways as possible to compete with other states that may have more natural advantages than we do. Eliminating the income tax would catapult Arizona ahead of neighboring states that we are competing with for jobs.
Stephen Slivinski is senior economist for the Goldwater Institute.
Goldwater Institute: The Tax Man and the Moving Van: Fiscal Policy and State Policy Shifts
Tax Foundation: State to State Migration Data