The pandemic changed so much about how Americans work, but it also changed where they work. Suddenly, millions of Americans no longer had to live within commuting distance of their jobs — in fact, they could live basically wherever they wanted to. It’s no surprise that as soon as this became the case, states with high taxes had a line at the exit.
The most recent release of the IRS’s “tax migration” statistics covers the difference between returns filed in 2020 and returns filed in 2021, showing where taxpayers moved around the country between those two years. Since taxpayers file their individual income tax returns in the spring following the year that the tax return covers (tax returns filed in 2021 describe income taxes applying to income earned in 2020), this trove of data is our first look at how the first year of the pandemic affected tax migration.
That’s great news for taxpayers who find themselves with far more options of where they want to live, but for states that have relied on “job hubs” to keep taxpayers from escaping their clutches it’s a positively existential threat. California lost, on net, over 158,000 taxpaying households and a combined $29.1 billion in adjusted gross income (AGI), while New York lost around 142,000 households and $24.5 billion in AGI.
That’s not a new trend, as California and New York have been hemorrhaging taxpayers for years. But it does also represent a rapid acceleration of this trend. Just the previous year, California lost 117,000 households and $17.8 billion in AGI, while New York lost 131,000 households and $19.5 billion in AGI.
Of course, one state’s loss is another state’s gain. And just as the tax migration losers lost more, so too did the tax migration winners win more.
During the first year of the pandemic, Florida gained a net of 128,000 taxpaying households and a staggering $39.2 billion in AGI. That’s an enormous jump from the year before, when Florida was still a big tax migration winner, but “only” gained on net 81,000 households and $23.7 billion in AGI.
And the theme of taxpayers fleeing for greener pastures holds true throughout 2020’s tax migration data. The five biggest tax migration losers (California, New York, Illinois, Massachusetts, and New Jersey) are all known for being high-tax states, and lost on net a combined 392,000 taxpaying households and $72.5 billion in AGI.
The five biggest tax migration winners (Florida, Texas, Nevada, North Carolina, and Arizona), on the other hand, are thought of as lower-tax states. These states gained a combined 297,000 households and $63.7 billion in AGI.
In total, of the more than 3.9 million households who moved to a different state that year, over 57.2 percent of those households and 64.4 percent of the AGI moved to a state with a lower combined state-local tax burden according to the Tax Foundation. Clearly, while taxes aren’t the only factor taxpayers consider when moving, it is an extremely important one.
Unfortunately, high-tax states appear determined to try to fight this trend not by reforming their tax codes and reducing tax burdens, but by increasingly trying to reach across their borders and tax nonresidents. If those efforts aren’t foiled, high-tax states will push the bite of the backlash to their backwards tax codes onto taxpayers in other states.
On the other hand, this represents a golden opportunity for taxpayers to vote with their feet, letting states know that ever-increasing tax burdens don’t pay. Chances for taxpayers to make themselves heard are rare enough — they should be sure not to let this one slip through their fingers.
