Americans Voting with their Feet, Moving to Lower Tax States
According to the Tax Foundation, Americans were on the move in 2022 and chose low-tax states over high-tax ones.[i] That’s the finding of recent U.S. Census Bureau population data and commercial datasets released this week by U-Haul and United Van Lines.[ii] [iii]
The U.S. population grew 0.4 percent between July 2021 and July 2022, an increase from the previous year’s historically low rate of 0.1 percent.[iv] [v] While international migration helped numbers on the national level, interstate migration was still a key driver of state population numbers. New York’s population shrunk by 0.9 percent between July 2021 and July 2022, Illinois lost 0.8 percent of its population, and Louisiana (also 0.8 percent), West Virginia (0.6 percent), and Hawaii (0.5 percent) rounded out the top five jurisdictions for population loss. At the same time, Florida gained 1.9 percent, while Idaho, South Carolina, Texas, South Dakota, Montana, Delaware, Arizona, North Carolina, Utah, Tennessee, Georgia, and Nevada all saw population gains of 1 percent or more.
How does Maryland’s tax code compare? Maryland has a graduated individual income tax, with rates ranging from 2.00 percent to 5.75 percent. There are also jurisdictions that collect local income taxes. [vi] Maryland has a 8.25 percent corporate income tax rate. Maryland has a 6.00 percent state sales tax rate and does not levy any local sales taxes. [vii]Maryland’s tax system ranks 46th overall on the Tax Foundation’s 2022 State Business Tax Climate Index.[viii]
The population shift paints a clear picture: people left high-tax, high-cost states for lower-tax, lower-cost alternatives.
The individual income tax is illustrative here (though only one component of overall tax burdens, it is often highly salient). In the top third of states for population growth (including D.C.), the average combined top marginal state income tax rate is about 4.0 percent. In the bottom third, it’s about 6.6 percent. [ix]
Six states in the top third forgo taxes on wage income (Florida, Texas, South Dakota, Tennessee, and Nevada, as well as Washington, which taxes capital gains income but not wage income), and the highest top rate in that cohort is Maine’s 7.15 percent. Among the bottom third, five jurisdictions—California, Hawaii, New Jersey, New York, and Oregon—have double-digit income tax rates, and—excepting Alaska, with no income tax—the lowest rate is in Pennsylvania, where a low state rate of 3.07 percent is paired with some of the highest local income tax rates in the country. Six states in the bottom third have local income taxes; only one in the top third does.
The Census data shows population gains and losses, but not cross-border migration. (The Census provides migration data but on a longer time delay.) Moving data from U-Haul and United Van Lines, while less robust—and undoubtedly influenced by their geographic coverage—speaks more directly to cross-border migration and is confirmatory.[x] Both companies see states like California, Illinois, Massachusetts, and New York as the biggest losers, while states like Texas, Florida, and Tennessee are among the largest net gainers.
[i] How Do Taxes Affect Interstate Migration? | Data on State Migration Trends (taxfoundation.org)
[ii] 2022 National and State Population Estimates Press Kit (census.gov)
[iii] 2022 National Movers Study | United Van Lines®
[iv] Growth in U.S. Population Shows Early Indication of Recovery Amid COVID-19 Pandemic (census.gov)
[v] Population Grew 0.1% in 2021, Slowest Rate Since America’s Founding (census.gov)
[vi] Local Income Taxes: Details & Analysis | Tax Foundation
[vii] State and Local Sales Tax Rates | Sales Taxes | Tax Foundation
[viii] State Individual Income Tax Rates and Brackets | Tax Foundation
[ix] Individual Income Tax Definition | TaxEDU Glossary (taxfoundation.org)
[x] How Do Taxes Affect Interstate Migration? | Data on State Migration Trends (taxfoundation.org)