Voting with Their Feet: Low Tax Red States Win, High Tax Blue States Lose

The Tax Cuts and Jobs Act of 2017 passed in December 2017 limited the federal deductibility of state and local taxes to $10,000. Prior to its passage, states were able to raise state and local taxes and transfer a portion of the burden to residents of other states via federal deductibility.  

 

In effect, the 2017 tax law made living in a high tax jurisdiction less economically desirable. That is, the 2017 tax law made it more expensive to live in high tax states and incentivized workers, particularly high-income workers, to move from high tax states to low tax states. Has this happened?

                                    

Data in the accompanying table shows net interstate population migration for the period 2017-19 by state and local tax burdens:   States are ranked from the highest tax state (Vermont) to the lowest tax state (Alaska). States are also categorized as Red, Blue or Purple depending on voting records over the past four presidential elections. States that voted Republican in all four presidential elections are labeled Red "R", states that voted Democrat in all four elections are branded Blue "B", and states that split their electoral votes in the four elections are identified as Purple "P."

Table 1: 2017 state tax burden ranking; 2017-19 net population migration

• The 10 states with the highest tax burdens in 2017 suffered a loss of 181,056 residents via migration, or 2.9 residents for each 1,000 in population.
• 80% of these high tax states were Blue states, and 20% were Red states.
• The 10 states with the lowest tax burdens in 2017 experienced a net gain of 425,339 residents via migration, or 2.8 residents per 1,000 in population between 2017 and 2019.  
• 90% of these migration gainers were Red states, and 10.0% were Blue states.

Passage of the 2017 tax law reduced the ability of high tax states to transfer a portion of their taxes to residents of low tax states. While not conclusive, data presented in Table 1 supports the proposition that passage of the 2017 federal tax law incentivized migration from high tax to low tax states.