Low tax states continue to attract new residents

An underrated story in recent years is how much more cautiously Georgia’s lawmakers have moved on several issues than their counterparts in similar states.

We’ve seen it regarding school choice and healthcare reform, two areas in which Georgia has stagnated while fellow “swing states” like Florida and Arizona have been forging ahead.

And we’ve seen it regarding tax reform. Last year, Iowa moved to shrink its nine-bracket personal income tax, with a top rate of 8.53%, to a flat rate of 3.9% by 2026. Over the past decade, North Carolina has gone from a three-bracket personal income tax topping out at 7.75% to a flat rate of 4.75% with more cuts planned. Florida, of course, has no personal income tax.

Meanwhile, Georgia laudably flattened our six brackets to a flat rate, effective next year. But since 2018 the top rate has gone only from 6% to next year’s rate of 5.49%, and it isn’t scheduled to fall below 5% until at least 2029. Lower is better, but slower isn’t.

Today I want to focus on taxes, and the latest evidence that we need to go further, faster.

You’ve heard the phrase “voting with their feet” about people who move to places that better reflect their policy preferences. Each year, the Internal Revenue Service reports data about taxpayers’ movement. The data speak to the relative attractiveness of states, and we can infer a few things about policy preferences.

The latest data, covering individual tax filers’ moves between 2020 and 2021, show Georgia received a net $1.28 billion increase in adjusted gross income from newcomers. That’s a good thing: It means the people moving here brought more income with them than the people moving out took away. That’s better for the local businesses they patronize and the state treasury that taxes them.

What does that tell us about people’s policy preferences? While you’d have to survey the newcomers to know for sure, it seems pretty clear they wanted lower taxes. The six highest-tax states according to the nonpartisan Tax Foundation – New York, Connecticut, Hawaii, Vermont, California and New Jersey – accounted for 99.9% of Georgia’s new net income. Movement to and from the other 43 states and the District of Columbia was basically a wash.

That said, the rest of the 10 highest-tax states (Illinois, Virginia, Delaware and Maine) also sent a net $420 million our way. 

Georgia has the eighth-lowest tax burden, making it very appealing. But seven states take even less from their residents, and they made off with more than $86 million in former Georgia income.

However, there’s a lesson here: The burden is one thing, but the type of tax may matter more.

In 2021, eight states had no personal income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming. They collectively drew away almost $704 million in income from Georgia – more than eight times the amount attracted by states that actually have lower tax burdens.

There are of course some caveats to bear in mind. Imposing no income tax doesn’t help a state if its overall burden is fairly high (I’m looking at you, Washington state). Proximity matters: The lion’s share of income leaving Georgia went to Florida, which not only has zero income tax but is right next door (compared to, say, Texas, which took 1/16 as much).

And people have other reasons for moving. More tax filers actually moved here from Florida, although that’s not necessarily a good thing since those Georgians who moved south had far higher incomes. The same goes for Utah, Colorado and Wyoming – a geographic cluster that drew fewer people but more income from Georgia, suggesting other motivations. (Head for the mountains!)

Still, it’s clear that lower taxes attract more people with more money, and lower income-tax rates are even more appealing than the beaches of California or the bright lights of New York. Maybe that will move Georgia’s lawmakers to act.

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