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Monday, April 16, 2012

"The Migration Myth"

Greg Mankiw argues that:

If people feel that their taxes exceed the value of their public services, they can go elsewhere. They can, as economists put it, vote with their feet.

How much evidence is there that people actually do this, i.e. move to another place to flee high taxes?:

Migration Myth Strikes Again, by Jon Shure, CBPP: Proponents of the migration myth are at it again, trying to sell the idea that if states with lower taxes gain more population than states with higher taxes, taxes must be the reason.

To prove that people migrate from state to state in search of lower taxes, the latest edition of the American Legislative Exchange Council’s (ALEC) “Rich States, Poor States” report notes that, over the past two decades, Hawaii (which has an income tax with a relatively high top rate) has lost twice as many residents to other states as Alaska (which has no income tax).

Wait, you might ask. What about differences in the job market? Oil prices? Housing costs? Shouldn’t we take these and other potential factors into account? Indeed we should.

As we discussed in a major report last year,... Studies by economists and demographers that take into account the wide range of other factors show consistently that taxes have little if any impact on migration.

The ALEC report ignores the growing body of research that debunks the tax-flight myth, instead citing statistical tidbits that might seem compelling at first glance but wilt under scrutiny.

For example, ALEC attributes Florida’s 46 percent population gain between 1990 and 2010 to its lack of an income tax, ignoring the fact that neighboring Georgia — which has an income tax — grew by 50 percent over that period.

As for Alaska and Hawaii – the states that ALEC uses to illustrate the tax-flight myth — IRS data show that, in fact, slightly more households are moving from no-income-tax Alaska to high-income-tax Hawaii than the other way around. ...

As our report stated:

It would not be credible to argue that no one ever moves to a new state because of the desire to live someplace where taxes are lower. But neither is it credible to say that taxes are a primary motivation, nor that migration has a large impact on the revenue impact of tax measures.

[On Mankiw's column, see the list of responses in today's links. See here too.]

    Posted by on Monday, April 16, 2012 at 11:26 AM in Economics, Taxes | Permalink  Comments (51)

          


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