Money Moves: An Analysis of Top Margin State Income Taxes and Interstate Migration Open Access
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Income tax increases have historically faced backlash, especially from the wealthy. Consequently, this group has lobbied intensely against these tax changes, arguing that such measures would ultimately hurt the state as they and many others would simply leave and take their tax revenue with them. However, these threats are not necessarily founded as a small number of high income earners leaving does not outweigh the revenue benefits of higher rates. To analyze the impact of top margin income tax rates on domestic migration, this paper examines U.S. Census state-to-state migration flow data alongside the think tank Tax Foundation’s top margin state income tax rates from 2008 to 2018. With this data, the study estimates a linear regression on panel data with time and state fixed effects, controlling for state living costs, employment prospects, income levels, and income tax burden. When these factors are accounted for, top tax rate does significantly negatively affect net state migration. Further, top tax rate exhibits a slightly positive relationship with net migration into the state such that a one percentage point increase in the top tax rate corresponds to nearly a 0.10% increase in state population through domestic migration. These results suggest that policymakers could likely raise taxes without fear of mass emigration or loss in overall tax revenue.