Migration and Tax Rates

A new paper from the Mercatus Center in Virginia provides more evidence for the relationship between high tax burdens and people showing their preference by voting with their feet. In this case, the people involved are those most likely to make job-producing investments in a community and state — rich people. The paper serves as a warning to state legislators that would like to tax just the wealthy.

Tax Rates and Migration,” by scholars Anthony Davies and John Pulito, reveals that that high tax rates in a state lead to increased outbound migration — but not just of very wealthy people. From their paper:

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We also find that changes in the income levels to which the tax rates apply similarly affect out-migration. ... This behavior suggests that the tendency to lower the threshold for “high income” or “millionaire” households ... may entice those households to follow the behavior of millionaire households and flee to more tax-friendly environs.

Or to put it another way, when the definition of “millionaires and billionaires” is expanded by a state or local government to impose higher graduated income tax rates on individuals and small businesses making far less, those folks also become more likely to depart for friendlier tax climates — just like the really rich guys and gals.

More broadly, Mackinac Center research has found that for every 10 percent increase in Michigan's tax rates, an additional 4,900 people flee this state every year thereafter. (Earlier this year, the Michigan Legislature and governor repealed an 8.2 percent reduction of the state income tax rate that was already “baked into” current law: Rather than gradually falling from 4.35 percent to 3.9 percent, the rate will now “stick” at 4.25 percent.)

Among other things, these findings provide yet more reason for Michiganders to view with extreme suspicion calls to repeal this state’s constitutional prohibition on a graduated state income tax.

See also:

Graduated Income Taxes Hurt State Growth

Taxes and the Life and Death of Great American Cities