Monday, April 14, 2008
Tatom's paper is here. Below is the graph that displays the data with the trend line of -0.41%.
Pooh-poohing the idea that low taxes and/or the job growth associated with lower taxes are important incentives to movers, the New Century Foundation cited several high-tax areas -- such as Washington D.C., Vermont and Oregon -- that have been attracting new residents. True enough, and another exception is North Carolina, which has a relatively high income tax and yet remains a destination state -- although North Carolina also has a smaller tax burden overall, thanks to low sales and property taxes.
Yet the general trend seems clear. The eight states in the continental United States without an income tax all gained population, even South Dakota. One of the few states in the northeast that has continued to attract people is New Hampshire -- a no-income-tax state. Indiana State University's John Tatom, a former economist at the Federal Reserve Bank of St. Louis, did more than just eyeball the trends. He applies sophisticated econometric techniques and concludes that tax rates do matter: "The in-migration rate is sensitive to the tax rate.... Each one percentage point rise in the tax rate will reduce the in-migration rate by 0.41 percentage points."
This should be used by our discussants from February on the relationship between state taxes and migration. Let me also add this fascinating State Demographer's Office report (the fascinating was a joke, son) which includes data of paired tax returns of in- and out-migrants to Minnesota. "Minnesota gains net migrants from most Midwestern states except Wisconsin. Other than Wisconsin, the biggest net losses between 2000 and 2005 were to Florida, Arizona and Texas. The largest net gains were from foreign addresses, North Dakota, Illinois and Iowa." The data would suggest to me that people leaving here are getting warm; we don't have data on age, but it's a fair guess, I'd think, that many of these are retirees.