As we have long known, all other things being equal, people tend to flee unfree, high-tax environments in favor of freer, low-tax environments. Other factors also play a role; opportunity, time, cost, family—all of these things are considerations for those thinking about moving. But people constantly show a strong tendency to be left to their own devices to live their lives and keep what they earn.
So what happens when it becomes possible for more people to choose where they live regardless of where their work is geographically, as when a global pandemic helps normalize telecommuting? It turns out that many are fleeing unfree, high-tax environments with even greater enthusiasm.
“Millions of people have moved during the pandemic, driven by the ability to work remotely, the desire for more space and better affordability,” Nadia Evangelou, senior economist at the National Association of Realtors, wrote on Jan. 30. “Twenty-six states experienced an inflow of people, with more people moving in than leaving, while twenty-five states lost those who moved…California (-343,230), New York (-299,557), and Illinois ( -141,656) experienced the largest net domestic emigration.”
California, New York, and Illinois lost the most people in raw numbers during 2022, but they were also all in the top ten in terms of the net percentage of population leaving each state. New York lost 0.9 percent, Illinois lost 0.8 percent, and California lost 0.3 percent (tied with Pennsylvania, Mississippi and Rhode Island).
All these countries have something else in common: high tax burdens. “Tax burden measures the share of total personal income that residents pay in state and local taxes,” notes WalletHub, which ranks states by the measure. Using an estimate based on property taxes, personal income taxes, and sales and excise taxes, WalletHub ranks New York as the highest-taxed state in the country, putting California at ninth and Illinois at 10th.
All three conditions share another characteristic: they are a bit of a control freak. Using a wide range of results for personal liberty, fiscal policy, and regulatory policy, Cato Institute Freedom in 50 states ranks states based on the environment they offer to people who care about some combination of entrepreneurship, sexual freedom, gun ownership, homeschooling, and the like. New York ranks last at 50, California at 48, and Illinois at 37.
“Illinois used to be a relatively decent state for economic freedoms, although it almost always did much better on fiscal policy than on regulatory policy. But the state has lost some of that edge while also, not surprisingly, losing some of its economic vitality,” the editors note. the best ranked of the three. “Illinois has long been our bête noire when it comes to personal liberty, but that has changed dramatically with federal court decisions that have struck down some extreme restrictions on gun rights, the legalization of same-sex marriage, marijuana reform, and the availability of driver’s licenses to people without Social Security numbers.”
That advance in personal freedom seems insufficient to placate those reeling from the erosion of economic freedom and high taxes, given the net 141,656 residents who sought a new life elsewhere.
Reasons besides taxes and freedom drive people’s decisions about where to live, of course. Affordability, time, family, amenities and job opportunities weigh heavily on people’s minds when deciding where to settle.
“While high earners may have the most to lose from higher income taxes, they are also, by definition, high earningsmeaning they likely have a good job near where they live,” demographer Lyman Stone wrote for the Tax Foundation in 2014. “The higher your income, the less likely a job opening up in another state could increase your income.”
Stone believed that taxes were more likely to motivate migration among people who wanted to improve their situation than among those who were already doing well.
Since then, however, a little thing called COVID-19 has come along and normalized office work from places not rented by employers. The telecommuting revolution has by no means affected all jobs—many people still have to show up to get work done. And some employers want workers back in the office. But many white collar workers certainly are had the flexibility to work where they want, and some of that will continue permanently.
So that should be good news for places like Hawaii, where internet connections come near beaches and sunshine, right? Not so much. The Aloha State saw a net out-migration of 15,212 people, or 0.5 percent of its population in 2022. That could have something to do with the nation’s second-highest tax burden and ranking of 49 out of 50 states for freedom. . As an archipelago that relies on the transportation of supplies, it is also a very expensive place to live.
People can always enjoy the prices, relatively lenient laws and tax rates elsewhere for their daily life and book their visits to Hawaii for vacation.
The correlation continues between countries with lower taxes and greater freedoms and those where people move to. Of the top 10 states for internal migration in both net raw numbers and percentage of population growth, five are ranked among the 10 lowest tax burdens; all are in the lower half for the tax burden. Also, of the top 10 states for immigration in raw net numbers and population growth, five ranked among the top 10 freest states in the country; only Delaware (1.4 percent net population increase) ranked among the 20 least free states, at 44th.
Of the ten states with the lowest tax burden, only Alaska lost population (eight of the 10 states with the highest taxes lost population). Of the ten states ranked as the most free, only Michigan lost population (eight of the 10 least free states lost population).
There’s a lot to dissect here, as well as a lot of competing factors as to why people move from one place to another. Even within a ranking of tax burden and freedom, some people will emphasize one tax rate over another, or exclude a country that otherwise ranks well in overall freedom because it scores poorly in areas that matter to them. And that’s before we get to other important issues such as job opportunities, family, climate, culture and costs.
That said, all things being equal, it’s clear that states that govern and have sticky fingers are more likely to attract people than those that generally leave people alone to lead their own lives and keep a relatively large portion of their own money.