TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, September 11, 2013

How Money Walks

MoneyWalks-CoverTravis H. Brown, How Money Walks: How $2 Trillion Moved Between the States, and Why It Matters (2013):

Between 1995 and 2010, millions of Americans moved between the states, taking with them over $2 trillion in adjusted gross incomes. Two trillion dollars is equivalent to the GDP of California, the ninth largest in the world. It s a lot of money. Some states, like Florida, saw tremendous gains ($86.4 billion), while others, like New York, experienced massive losses ($58.6 billion). People moved, and they took their working wealth with them. The question is, why? Why did Americans move so much of their income from state to state? Which states benefited and which states suffered? And why does it matter?

Using official statistics from the IRS, How Money Walks explores the hows, whys, and impact of this massive movement of American working wealth. Consider these facts. Between 1995 and 2010:

  • The nine states with no personal income taxes gained $146.2 billion in working wealth
  • The nine states with the highest personal income tax rates lost $107.4 billion
  • The 10 states with the lowest per capita state-local tax burdens gained $69.9 billion
  • The 10 states with the highest per capita state-local tax burdens lost $139 billion Money and people moved from high-tax states to low-tax ones.

And the tax that seemed to matter the most? The personal income tax. The states with no income taxes gained the greatest wealth, while the states with the highest income taxes lost the most. Why does this matter? Because the robust presence of working wealth is the leading indicator of economic health. The states that gained working wealth are growing and thriving. The states that lost working wealth lost their most precious cargo their tax base and the consequences are dire: stagnation, deterioration, an economic death spiral as they continue to raise taxes and lose people, businesses, and working wealth. The numbers don't lie.

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How can anyone know for sure why a person moves from one state to another? Even if they tell a pollster they are moving due to high taxes, that is likely not the whole reason.
I live in a high tax state--California. I might move to Oregon one day. One reason might be that Oregon has lower taxes (no sales tax for one thing). But I doubt this would be the only or main reason. Oregon happens to be nice.
Could it be a coincidence that many of the high-tax states people are leaving are cold, while many of the low-tax states they are moving to are warm? Maybe temperature trumps taxes.

Posted by: Stephen Fishman | Sep 11, 2013 3:00:15 PM

And don't forget all the wealth that left the country entirely, like Saverin's billions and Depardieu's millions. What would save California and New York would be a statewide non-portable health-care benefit system just like Medicare and Obamacare, which are worthless outside the USSA.

Posted by: Jimbino | Sep 12, 2013 9:44:50 AM

I live in California. Yogi Berra once said of Coney Island that "Nobody goes there anymore. It's too crowded." Just so.

Posted by: Killeen/Jeffrey | Sep 12, 2013 11:21:05 AM