Michael Mazerov, Tax Myth Monster Slayer

Like the mythic Hydra of centuries old, the idea that people “vote with their feet” by intentionally leaving high-tax states for low-tax states is a monster that will not die. Each time the tax flight myth is shot down, two additional claims arise that espouse tax migration as gospel. Even though ITEP’s own Carl Davis demolished Art Laffer’s claim that states without income taxes outperform states with progressive income taxes way back in 2011, Laffer continues to peddle the same snake-oil. And despite the abundance of data refuting the migration claims posited by anti-tax activists like Travis Brown, Maryland Republicans made the same deeply-flawed claims a centerpiece of their strategy in the recent gubernatorial election.

Luckily, Michael Mazerov at the Center on Budget and Policy Priorities (CBPP) is on the case. I saw Mazerov’s presentation on interstate migration and state income tax levels at this week’s State Fiscal Policy Conference, and walked away impressed with his thorough debunking of the myths.

The bards will sing tales of his greatness.

Proponents of the tax flight myth argue that people intentionally flee states like New York and California for states like Texas and Florida due to a conscious desire to pay lower state and local taxes. They draw the conclusion that states can promote in-migration and economic growth by cutting income taxes for the wealthy or at the very least stopping tax increases. Mazerov’s research shows that these arguments are dead wrong. In a paper he wrote in May, Mazerov found that taxes have a negligible effect on interstate moves; most people (75 percent) cited new jobs or family obligations as the main reason for leaving their state in a 2013 Census Bureau Survey. Furthermore, the rate of interstate relocation has declined over the past few decades; only 1.5 percent of the US population moved between states in 2013. 69 percent of US citizens still live in the state where they were born, and there is no relationship between a state’s income tax rate and the proportion of native born residents.

A key way that tax flight proponents distort the data is by focusing on out-migration and totally ignoring in-migration. Of the nine states with the highest top income tax rates in 2011, all nine replaced more than two-thirds of their departing households with new arrivals, according to IRS interstate migration data. In fact, the replacement rate was about 91 percent on average.

Another key argument that tax flight proponents make is that when residents or businesses depart, they take their income with them – a canard that Mazerov swatted down in a paper released last month. To state the obvious, most people don’t take their income with them when they leave since they work for other people. In most cases, their job will just be filled by another resident of the state, new or old. Research also shows that entrepreneurs – the “job creators” that proponents claim will flee to low-tax states – are relatively immobile. A February 2014 survey of 150 entrepreneurs found that the most common reason for launching a business in a particular location was that the entrepreneur lived there; the second most common reason was access to talent. Only five percent of those surveyed cited low tax rates as a factor. When business owners leave a state, the business is sold or other businesses pick up its market share – it would be a strange economy indeed where jobs and firms disappeared even though the demand for those jobs and firms remained.

Finally, proponents of the tax flight myth ignore the convincing body of research around the impact of climate on interstate migration decisions. Mazerov’s research shows that Florida (no income tax) was the top destination for interstate movers from Illinois, Michigan, New Jersey, New York, Ohio and Pennsylvania despite vastly different income tax rates in those states. The second-most popular destination states were Arizona and North Carolina, despite the presence of Nevada, Tennessee and Texas – all states with no income tax – close by.

The empirical evidence confirms what most know intuitively: people don’t pack up their lives and move to another state because of percentage changes in personal income tax rates. They move for a spouse, for a job, to be closer to family, to get a better education – in short, for the myriad human reasons that make our lives meaningful. It would be better for states to invest in areas that would actually attract new residents and economic activity (affordable housing, education, and workforce development for starters) than to conjure up justifications for unfair tax cuts. We owe Michael Mazerov a debt of gratitude for his Herculean effort to bring the facts to this crucial public policy debate.