As we've long known, all other things being equal, people tend to flee unfree, high-tax environments in favor of more-free, low-tax environments. Other factors play a role too; opportunity, weather, expense, family—all of these things are considerations for those contemplating a move. But people continually show a strong affinity for being left alone to live their lives and keep what they earn.
So, what happens when it becomes possible for more people to choose where to live independently of where their jobs are geographically based, such as when a global pandemic helps normalize remote work? It turns out that many flee unfree, high-tax environments with even greater enthusiasm.
"Millions of people moved during the pandemic, driven by the opportunity to work remotely, the desire for more space, and better affordability," Nadia Evangelou, senior economist for the National Association of Realtors, wrote January 30. "Twenty-six states experienced an influx of people, with more people moving in than out, while twenty-five states lost movers … California (-343,230), New York (-299,557), and Illinois (-141,656) experienced the largest net domestic outmigration."
California, New York, and Illinois lost the greatest number of people in raw numbers during 2022, but they were also all in the top ten in terms of the net percentage of population that left each state. New York lost 0.9 percent, Illinois lost 0.8 percent, and California lost 0.3 percent (tying with Pennsylvania, Mississippi, and Rhode Island).
These states all have something else in common: high tax burdens. "Tax burden measures the proportion of total personal income that residents pay toward state and local taxes," notes WalletHub, which ranks states by the measure. Using an assessment based on property taxes, individual income taxes, and sales and excise taxes, WalletHub ranks New York as the most highly taxed state in the country, puts California in ninth position, and Illinois at 10.
All three states share another characteristic: they're a bit control freak-y. Using a wide-ranging composite of scores for personal freedom, fiscal policy, and regulatory policy, the Cato Institute's Freedom in the 50 States ranks states based on the environments they offer for people who care about some combination of entrepreneurship, sexual liberty, gun ownership, homeschooling, and the like. New York comes in dead last at 50, California ranks at 48, and Illinois at 37.
"Illinois used to be a relatively decent state for economic freedom, although it almost always did much better on fiscal policy than on regulatory policy. But the state has lost some of that edge while also, not surprisingly, losing some of its economic vitality," the editors observe of the best-ranked of the three. "Illinois was long our bête noire on personal freedom, but that has dramatically changed with federal court decisions that have overturned some extreme restrictions on gun rights, the legalization of same-sex marriage, marijuana reform, and the availability of driver's licenses to people without Social Security numbers."
That improvement in personal freedom seems insufficient to mollify those put off by eroding economic liberty and high taxes, given the net 141,656 residents who sought a new life elsewhere.
Considerations in addition to taxes and freedom drive people's decisions about where to live, of course. Affordability, weather, family, amenities, and job opportunities weigh heavily on people's minds when deciding where to base themselves.
"While high earners may have the most to lose from higher income taxes, they are also, by definition, high earners, meaning they probably have a good job near where they live," demographer Lyman Stone wrote for the Tax Foundation in 2014. "The higher your income, the less likely there will be a job opening in another state which could boost your income."
Stone believed that taxes are more likely to motivate migration among people looking to improve their situations than among those already doing well.
Since then, though, a little thing called COVID-19 came along and normalized office work from places other than spaces rented by employers. The remote work revolution hasn't affected all jobs by any means—many people still have to show up to get things done. And some employers want workers to return to the office. But many white-collar workers have certainly had flexibility to work where they please, and some of that will continue permanently.
So, that should spell good news for places like Hawaii, where internet connections come with proximity to beaches and sunshine, right? Not so much. The Aloha State saw a net out-migration of 15,212 people, or 0.5 percent of its population in 2022. That might have something to do with having the second highest tax burden in the country, and a rank of 49 out of 50 states for freedom. As an archipelago that relies on shipping in necessities, It's also a very expensive place to live.
People can always enjoy the prices, relatively permissive laws, and tax rates elsewhere for their everyday lives and reserve their visits to Hawaii for vacations.
The correlation continues between states with lower tax and greater freedom and those that people move to. Of the top-10 states for in-migration in both net raw numbers and percentage population gain, five are ranked among the 10 with the lowest tax burdens; all are in the bottom half for tax burden. Also, of the top-10 states for in-migration in both net raw numbers and population gain, five are ranked among the 10 most-free states in the country; only Delaware (1.4 percent net population gain) is ranked among the 20 least free states, at number 44.
Of the ten states with the lowest tax burdens, only Alaska lost population (eight of the 10 highest-taxed states lost population). Of the ten states ranked most-free, only Michigan lost population (eight of the 10 least-free states lost population).
There is plenty to parse here, and a good many competing factors as to why people move from one place to another. Even within rankings of tax burden and freedom, some people will emphasize one tax rate over another, or rule out a state that otherwise ranks well on overall freedom because it does poorly in areas that are important to them. And that's before we get to other important concerns like job opportunities, family, climate, culture, and cost.
That said, all things being equal, it's clear that states that are bossy and sticky-fingered have a tougher time attracting people than those that generally leave people alone to run their own lives and keep a relatively large share of their own money.
The post Migrating Americans Seek Lower Taxes and Greater Freedom appeared first on Reason.com.
