High Tax States Are Losing Billions
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The Fiscal Times
March 17, 2014

At the annual Conservative Political Action Conference earlier this month, one exhibition booth stood out from the others, largely because it was populated by people dressed as characters from the Star Wars movies. Imperial storm troopers stood beside rebel fighters, and someone had even dressed up as the bounty hunter Boba Fett.

The point of the Star Wars theme was to draw attention to the data collected by author Travis H. Brown, whose book, How Money Walks studies the migration of wealth between counties and states in the U.S. There was some vague storyline about an evil empire and courageous resistance fighters. Somebody was “taken prisoner.” It was, in the end, ridiculous.

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The strong impression delivered by the pantomime in the exhibition hall was: If this is what you need to do to promote your book, there probably isn’t much in it worth reading.

Amateur theatrics aside, Brown, who has been marketing his book across the country for much of the year, actually uncovered some pretty interesting data. In short, he took 18 years of IRS records – between 1992 and 2010 – and tracked the movement of adjusted growth income numbers from state to state. The data, which did not include personally identifiable information, allowed Brown to track the movement of individual tax filers from year to year.

Using adjusted gross income (AGI) as a proxy for wealth, Brown found that a number of states, primarily those with relatively high state income tax burden saw very large movements of money outside their borders, with much of it moving to low-tax jurisdictions.

For instance, Brown’s data shows that between 1992 and 2010, there was a net outflow of income totaling $68.1 billion from New York State, where the top income tax rate is 8.82 percent. About $19 billion of that money went to Florida alone, one of the few states with no income tax. According to Brown’s data, New York was a net recipient of wealth flow from one state only: Michigan.

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California, another relatively high-tax jurisdiction with a top rate of 12.3 percent (13.3 percent on income over $1 million) was also a net loser of wealth over the time studied, with a net outflow of $45.3 billion. The two largest recipients of the flow of wealth from California were Nevada, which has no income tax, and Arizona, which has a top rate of only 4.54 percent.

In fact, all nine of the states that either impose no income tax at all or tax only interest and dividend income saw net inflows. Among the biggest winners, by Brown’s calculation were Florida, which took in $95.6 billion; Arizona, with $28.3 billion; North Carolina, gaining $25.2 billion; and Texas, which took in $24.9 billion.

The biggest winners in Brown’s findings also happen to be states that attract many retirees, who may be migrating for reasons that have little to do with the tax rate. However, net inflows were also measured for no-tax states, such as New Hampshire and Washington, which are not generally considered retirement destinations.

Despite protestations to the contrary, there is clearly a strong anti-tax agenda here. The book has a glowing introduction from Arthur Laffer, proponent of the old supply-side economics standby Laffer Curve, and a mobile app based on the book’s data appears to have been developed in concert with the Laffer Center. But, just as being paranoid doesn’t eliminate the possibility that everyone might really be out to get you, coming to the debate over state income taxes with an agenda doesn’t mean you are necessarily wrong.

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A longtime reporter on the intersection of the federal government and the private sector, Rob Garver is National Correspondent, based in Washington, D.C. He has written for ProPublica, The New York Times and other publications.