Fiscal conservatives often use “tax flight” as an argument for lower tax rates. Tax flight suggests that if taxes become too high, families will flee their current home for locales with lower taxes. But a recent study finds that “tax flight” is more myth than reality.
Less than 2 percent of households actually make an interstate move in a given a year. Therefore, 98 percent of Americans continue living in their current state, every year, regardless of tax changes. Of those who do move in a given year, most move for reasons like a new job or to be near family.
In 2013, Policy Matters Ohio's Amy Hanauer and Tim Krueger studied the migration patterns from 1998 to 2008 for all states and a separate Ohio region that included all adjoining states. They found that employment, not taxes, is the most important factor in interstate migration.[i] “Taxes and migration have sometimes moved in the same direction but sometimes moved in opposite directions …this is very different from [the relationship between employment and migration], where the relationship is clear and in the same direction.”[ii]
Ohio Governor John Kasich’s proposed 2014-15 budget cuts taxes, reducing Ohio’s revenue by one percentage point, or $487 million. Policy Matters Ohio found that a one percentage point reduction in tax revenue would actually cause a small, but statistically significant net out-migration.
“If $487 million in cutbacks results in a loss of 7,300 jobs, it would cause nearly 1,200 people to leave or not come to Ohio on net. If jobs were lost in law enforcement or other sectors that could lead to higher property crime, then the impacts on migration could be even greater.”[iii]
But that’s not all. In 2011 U.S. Census Survey data, respondents ages 30-64 cited job, housing and family as the main reasons for moving – not taxes.
“Americans cited natural disasters as a reason for moving more frequently than they did taxes.“
North Carolina now finds itself in a similar situation to Ohio. Lawmakers have already cut taxes to the point that we now have a major budget shortfall. North Carolina lost almost $700 million in revenue due to the 2013 tax bill and is projected to lose $5.3 billion over the next 5 years.
So the question remains: since state income tax cuts seem to have no impact on interstate migration while reduced tax revenues have a negative effect on employment and quality of life, what will the future hold for North Carolina? Or, in the end, is hurricane season a bigger factor than state fiscal policy?
[i] Hanauer, Amy and Krueger, Tim. (2013). Policy Matters Ohio. The Tax Flight Myth: People move for jobs, housing, family- not taxes. Retrieved from http://www.policymattersohio.org/wp-content/uploads/2013/03/TaxesMigration_Mar2013.pdf
[ii] See note i.
[iii] See note i.