2022 Population Shift: How Low-Tax States are Gaining Popularity

2023-01-10 08:00:00

Americans were on the move in 2022 and chose low-tax states over high-taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
ones. That’s the finding of recent U.S. Census Bureau population data and commercial datasets released this week by U-Haul and United Van Lines.

The U.S. population grew 0.4 percent between July 2021 and July 2022, an increase from the previous year’s historically low rate of 0.1 percent. While international migration helped numbers on the national level, interstate migration was still a key driver of state population numbers. New York’s population shrunk by 0.9 percent between July 2021 and July 2022, Illinois lost 0.8 percent of its population, and Louisiana (also 0.8 percent), West Virginia (0.6 percent), and Hawaii (0.5 percent) rounded out the top five jurisdictions for population loss. At the same time, Florida gained 1.9 percent, while Idaho, South Carolina, Texas, South Dakota, Montana, Delaware, Arizona, North Carolina, Utah, Tennessee, Georgia, and Nevada all saw population gains of 1 percent or more.

This population shift paints a clear picture: people left high-tax, high-cost states for lower-tax, lower-cost alternatives.

The individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.
is illustrative here (though only one component of overall tax burdens, it is often highly salient). In the top third of states for population growth (including D.C.), the average combined top marginal state income tax rate is about 4.0 percent. In the bottom third, it’s about 6.6 percent.

Six states in the top third forgo taxes on wage income (Florida, Texas, South Dakota, Tennessee, and Nevada, as well as Washington, which taxes capital gains income but not wage income), and the highest top rate in that cohort is Maine’s 7.15 percent. Among the bottom third, five jurisdictions—California, Hawaii, New Jersey, New York, and Oregon—have double-digit income tax rates, and—excepting Alaska, with no income tax—the lowest rate is in Pennsylvania, where a low state rate of 3.07 percent is paired with some of the highest local income tax rates in the country. Six states in the bottom third have local income taxes; only one in the top third does.

The Census data shows population gains and losses, but not cross-border migration. (The Census provides migration data but on a longer time delay.) Moving data from U-Haul and United Van Lines, while less robust—and undoubtedly influenced by their geographic coverage—speaks more directly to cross-border migration and is confirmatory. Both companies see states like California, Illinois, Massachusetts, and New York as the biggest losers, while states like Texas, Florida, and Tennessee are among the largest net gainers.

Low-Tax States Saw More Population Growth and Higher Inbound Migration

Census Population Data (July 2021 – July 2022) and Industry Moving Data (2022)

State
Census
U-Haul
UVL

Alabama
20
20
10

Alaska
37
41
n.a.

Arizona
8
7
20

Arkansas
17
43
18

California
41
50
40

Colorado
19
11
31

Connecticut
31
28
39

Delaware
7
27
5

District of Columbia
(21)
36
7

Florida
1
2
12

Georgia
12
8
19

Hawaii
46
n.a.
n.a.

Idaho
2
10
15

Illinois
49
49
48

Indiana
23
14
22

Iowa
30
21
34

Kansas
33
39
36

Kentucky
28
26
24

Louisiana
48
35
41

Maine
15
29
17

Maryland
40
44
30

Massachusetts
38
47
43

Michigan
34
48
46

Minnesota
29
17
29

Mississippi
44
34
37

Missouri
27
15
25

Montana
6
18
28

Nebraska
24
32
42

Nevada
13
13
26

New Hampshire
18
38
14

New Jersey
35
45
49

New Mexico
39
19
9

New York
50
46
47

North Carolina
9
4
6

North Dakota
26
37
32

Ohio
36
9
38

Oklahoma
14
42
33

Oregon
45
22
2

Pennsylvania
43
24
44

Rhode Island
42
40
3

South Carolina
3
3
4

South Dakota
5
31
8

Tennessee
11
6
11

Texas
4
1
16

Utah
10
12
35

Vermont
32
30
1

Virginia
22
5
21

Washington
16
23
23

West Virginia
47
25
13

Wisconsin
25
16
27

Wyoming
21
33
45

Sources: U.S. Census Bureau; U-Haul; United Van Lines.

These industry studies record total migrations, whereas population data can be put in percentage terms, so large states like Texas—which, according to the Census Bureau, had the most population growth in nominal terms, but fourth-most in percentage terms—show up prominently while smaller states that saw large population surges, like Idaho, are somewhat lower on the list.

Another story from the industry data that is less apparent in Census population data is regional competition, even among comparatively high-tax states. Vermont is first in the United Van Lines data but middle-of-the-pack for overall population change because the state benefited from outmigration from densely populated Northeastern cities.

Similarly, U-Haul has relatively few inbound trips to Oklahoma, New Hampshire, and a few other states compared to United Van Lines and, more importantly, to Census data on population growth. Relatively local moves, such as those within the D.C. metropolitan area, can make a jurisdiction like the District of Columbia look like it is doing very well on United Van Lines data even though the Census data shows much milder growth. The industry data has limitations, but it remains informative.

People move for many reasons. Sometimes taxes are expressly part of the calculation. Often, they play an indirect role (by contributing to a broadly favorable economic environment). And other times, of course, they don’t factor in at all. The Census data and these industry studies cannot tell us exactly why each person moved, but there is no denying a very strong correlation between low-tax, low-cost states and population growth. With many states responding to robust revenues and heightened state competition by cutting taxes, these trends may only get larger.

The pandemic has accelerated changes to the way we live and work, making it far easier for people to move—and they have. As states work to maintain their competitive advantage, they should pay attention to where people are moving, and try to understand why.