On April 6, a blog post from the Center on Budget and Policy Priorities, argued that “states should forge ahead with new tax revenues in face of misleading tax migration claims.”

The piece, by Wesley Tharpe, CBPP Senior Advisor for State Tax Policy, argues that “States Should Forge Ahead with New Revenues in Face of Misleading Tax Migration Claims”. It offers a rebuttal to the idea that states that make efforts to raise more money to pay for services will suffer as businesses and individuals will react by rushing for the borders.

“For one,” the post states, “most claims about interstate tax migration are grossly exaggerated. A robust body of evidence shows people are not primarily motivated to uproot their lives and leave their communities because of how much state tax they pay.”

Tharpe argues that fair revenue policies can serve to attract people and corporations “by providing robust funding for public services, enhancing opportunity, and improving quality of life.”

He reports that “the few who do move most commonly cite jobs, housing, family, and even weather as the reasons for doing so — not taxes. Only about 1.5 percent of people make interstate moves in any given year and, when surveyed, more than two-thirds cite job- and family-related reasons as the primary driver.”

The piece points to a study published last year in the American Journal of Sociology, titled “Taxing the Rich: How Incentives and Embeddedness Shape International Tax Flight.” According to the study abstract, “tax incentives influence tax migration at the margins,” but that marginal influence is disrupted by “embeddedness” -- “place-specific social capital (which) anchors individuals to their communities.” 

Quoting from the study, the CBPP further reports that the study’s authors, Cristobal Young and Ithai Lurie, conclude “the rich in high-tax states do not move any more often than those in low-tax states.” 

Tharpe cites the experience in Massachusetts as evidence that a tax on high earners does not result in an exodus from the state. “In 2022, Bay State voters approved a new top income tax rate for those with annual incomes over $1 million, widely known as the Fair Share tax.” As the piece explains, “Since its implementation in 2023, the levy has delivered billions of dollars in new funding for transformative investments like universal free school meals, fare-free buses, and affordable child care. The tax has also routinely exceeded initial revenue projections — outpacing expectations by $3 billion over roughly its first three years.”

Although it may be hazardous to draw unassailable conclusions from the Massachusetts experience, “Newly released IRS data do not provide evidence of a millionaire exodus from Massachusetts due to the new tax,” reports the CBPP pointing out that “Fewer of the highest-income households in Massachusetts — those with incomes above $200,000 (the highest income threshold available in the data) — left the state between 2022 and 2023 than did between 2021 and 2022. The outmigration rate was 0.97 percent for these households in the 2023 data compared to 1.15 percent the year prior. In other words, the state appears less likely to have lost higher-income taxpayers the year after Fair Share was approved than immediately before it.”

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