High Taxes are Punishing and Pushing Out Residents

People can do amazing things. They create, innovate, support, and sacrifice. They are the lifeblood of an economy.

Losing people to other cities, states, or countries can be devastating for any region, so it is critical for policymakers to understand what drives residents to move. An analysis from the DeVoe L. Moore Center (DMC) at Florida State University addresses this question by summarizing past findings on net migration and tracking the relationship between a state’s tax climate and migration trends.

In its analysis, DMC looks at the correlation between a state’s business tax climate—using the Tax Foundation’s rankings—and net migration per 1000 residents. As the chart illustrates, the states with the best business tax climates generally attract more people than the states with the worst tax climates.

Unfortunately, Pennsylvania is one of the states with a poor business tax climate. Consequently, the state has seen too many residents leave for greener pastures. The same is true for other poor tax climate states like Connecticut, New Jersey, and New York.

The Tax Foundation’s index focuses primarily on the structure of tax rates. However, the overall burden is important as well. And again, DMC’s analysis finds taxes matter to migration rates. High tax states are more likely to lose residents to other states, whereas low tax states are likely to gain new residents.

In a summary of the existing literature on taxes, DMC found studies indicating taxes can significantly affect business activity, the movement of high skilled workers, and reduce income per capita. According to the analysis, economists cite “open markets, enforceable property rights, and the rule of law as determinants of wealth creation. State-to-state migration data suggest the same is true for US states.”

These conclusions complement past CF analyses, which found low tax states have better job and income growth rates than their high tax state counterparts. The evidence on taxes and economic growth could not be clearer.

One way to begin reversing the mass exodus of Pennsylvanians finding better opportunities beyond our borders is to improve our tax climate. Our fiscal and economic future depends on it.