Taxes & Migration

A recent report out by the Center on Budget and Policy Priorities (available as a pdf here) looks at the connection between state tax rates and migration between states. Or maybe it does not. They find little connection between changes in state tax rates and the migration between states.

I am not surprised by the result for one simple reason: migration is a complicated decision. To be fair, they point this out in several places but I think it could be the central result of their report. When I teach migration as a topic in population analysis this is exactly the approach I adopt. One factor I find less than convincingly addressed in the report and many of the cited studies is age. Age structure matters for migration rates anyway, and it is difficult to pull out of the available data age effects and tax impacts.

Consider all the variables that would enter into such a decision. Job prospects or availability would be an important factor. I would expect home prices to matter as well. Family connections you are leaving or moving to would matter as well. Somewhere in here taxes would come into play as well. That is the point, taxes are not irrelevant, but they are only one of many factors that matter. In many cases the effects of taxes would be outweighed by more general economic prospects such as jobs or wage growth and housing prices.

What are the effective consequences of this for North Dakota? It indicates that analysis of tax policy costs and benefits are likely most accurate when focused on internal costs and benefits. What are the revenue gains and losses to the state from changes? It is unlikely we will see large numbers of people moving to North Dakota based on reduced tax rates. There will surely be a few, but most migrants to North Dakota likely come looking for employment in oil or related industries. Those that do migrate likely find the difference due to new taxes enough to compensate for the costs of moving, but it is hard to believe this is a large number, or large enough to represent a significant influx. The current residents generate the bulk of the revenue impacts and that is where the analysis and policy discussion belong.

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