Americans often relocate to states with robust labor markets and economic growth, according to analysis by the American Enterprise Institute.
“There are significant differences between the top five inbound and top five outbound states when they are compared on a variety of measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal health, and labor market dynamism,” a blog post on AEI’s site reads. Its author, Mark J. Perry is a professor of economics and finance at the University of Michigan at Flint.
Perry examined the recently released North American Moving Services annual U.S. Migration report for 2017, which lists the states with top inbound and outbound migration each year. In 2017, the five states with the top inbound migration include Arizona, Idaho, North Carolina, South Carolina, and Tennessee. The top five outbound states are Illinois, Connecticut, New Jersey, California, and Michigan.
Using nine indicators, Perry compared the economic conditions of the states with the highest and lowest migration rates to determine whether there is empirical evidence to support the theory that people ‘vote with their feet’ by moving from economically stagnant, high tax states to business-friendly, lower tax states.
“It’s an ironclad law of economics that if you tax something you get less of it, and it’s therefore no surprise that Americans and businesses are leaving relatively high tax states for relatively low tax states,” Perry writes.
He noted the average top individual income tax rate in the top inbound states is 5.9 percent, while the average highest individual income tax rates in the top outbound states is 7.7 percent. Perry also noted a marked difference in the corporate tax rates in the top and bottom states. The top states have an average top corporate tax rate of 5.4 percent. The top average rate in the bottom states is 8.1 percent.
The regulatory environment also differs between the top and bottom states. The top states are all right-to-work states and four of the five bottom states force individuals to join labor unions for certain jobs.
In addition to taking top marks on the inbound migration numbers, Perry notes that most of the top listed states also hit high marks in other areas. Four of the top five inbound states, with the exception of Arizona, have above average fiscal health, according to Mercatus Center rankings. The bottom five all have below average state fiscal health. Likewise, four of the top five inbound states, with the exception of North Carolina, rank in the top half of the Tax Foundation’s State Business Climate index;four of the states with the highest outbound numbers, with the exception of Michigan, ranked in the bottom half. New Jersey ranked dead last in the Tax Foundation’s index.
“There is empirical evidence that Americans do ‘vote with their feet’ when they relocate from one state to another,” Perry concludes.
According to the migration report, Kansas and Missouri are balanced states, meaning their outbound and inbound migration are about equal. However, Kansas consistently has slightly higher outbound migration than inbound. Kansas is one of 23 states with negative migration between 2000 and 2015.
“The migration patterns of U.S. households last year followed predictable patterns based on differences among states in economic growth, vitality and dynamism, labor market robustness, fiscal health, and party control of state legislatures,” Perry writes.