Interstate Migration: People and Income

Yesterday we reported the migration flow between states, noting that:

the states that had the largest net outflow are almost entirely associated with high taxes or big tax hikes. States like New York, Illinois, New Jersey, Hawaii, California and Maryland hardly require any explanation; as for the last one, their Democrat governor Martin O’Malley, who was in office from 2007 to 2015, raised one tax every ten weeks during his tenure. The incumbent Republican governor has not had much room to change that; by comparison, Maryland has fallen behind other, more tax-lenient states.

Today we take a quick look at the migration of people and income. The numbers are from 2018, as 2019 data on income migration is not yet available.

Table 1 is based on IRS interstate migration data, which has been recalculated as a migration score. First, the income numbers are adjusted on a per-capita basis: for example, each person moving into California brought with him or her a taxable income of $45,309, while each person moving out of the state took with him or her $47,097 worth of income.

These two numbers are then divided, and the product is multiplied by 100. In other words: if a state scores 100, the outflow of total taxable income was exactly equal to the inflow; if the core exceeds (falls short of) 100, the income inflow was larger (smaller) than the outflow. In the case of California, the score is 96.2, meaning that for every dollar of income that left the state, only 96.2 cents migrated in.

A similar index calculation applies to popular migration. The number of people is defined by the IRS as the number of tax-return claimed exemptors. Again using California as an example, while 429,856 persons moved into the state in 2018, a total of 583,053 left it. This makes for a people migration score of 80.65.

The states are ranked in Table 1 by the popular migration score:

Table 1

Source of raw data: Internal Revenue Service

For the most part, higher inbound incomes are associated with a net inflow of people, and the other way around. This suggests that the people who leave states like New York, Illinois, Connecticut, California and New Jersey are higher-income professionals.

A few states exhibit contrasting income and people migration scores. Among the notable ones is Minnesota, which scored 101.28 in terms of people – more people moving in than out – but only 78.79 on income migration. This means that those who leave Minnesota have substantially higher incomes than those who move into the North Star State. (Please keep in mind that these are 2018 numbers, long before the 2020 riots.)

Wyoming stands out in the opposite direction: with a popular-migration score of 93.08, the Cowboy State lost almost 23,000 residents while attracting just over 21,000. By contrast, the income migration score of 118.49 reveals much higher earnings among inbound migrants: those who left Wyoming took with them $704.9 million while those who moved in earned $769.9 million.

When a state loses its lower-income workers, it loses its middle class. Those who move to Wyoming do it largely for its perceived low taxes: the absence of an income tax and a death tax is attractive to wealthy people who want to leave California, Illinois, the Hudson River states or New England. However, with 90 percent of private-sector workers making an average of $37,000 per year, Wyoming is not a cheap state to live in. When added together, state and local taxes, fees and charges add up to one of the top-three costliest states to live in.

It is therefore logical that Wyoming loses its middle class while attracting residents with high net worth. But the Minnesota pattern is not very attractive either: in effect, it means that the base for the state’s income tax is moving out while demand for its welfare-state entitlement programs increases with an inflow of low-income families.

All in all, the numbers presented in Table 1 show that states do well in keeping their governments limited and their economies competitive.