What We Can Learn From Tax Migration and the Volunteer State

It’s no great revelation that tax codes drive economic behaviors. Taxpayers respond to financial incentives and disincentives created by their surroundings. One way in which taxes drive behavior can be seen in the example of “tax migration.”

This is a map created by the Americans for Tax Reform Foundation. It shows income migration patterns in each of the 50 states, as well as the District of Columbia. Basically, income migration refers to the movement of adjusted gross income from state to state. The states colored in dark green have a net gain in migration from 100 percent of their bordering states. The states colored in red, by contrast, have a net loss in income migration.

Look at North Carolina: it’s red. It is a net loser in income migration with all neighboring states.

Now look at Tennessee. It’s green – meaning that income is pouring in to the state from every one of the surrounding eight states. Tennessee presents an especially interesting example in that it is one of only two states to have eight neighboring states.  Why is Tennessee so successful? What is Tennessee doing to bring all that money in from its neighboring states? Well, for starters, the Volunteer State has no state income tax.

As Travis Brown, author of How Money Walks, notes: “Incentives matter. Taxes may not be the sole reason Americans moved $2 trillion of their AGI between the states, but there is a clear and unmistakable pattern here: Incomes moved to where taxes were lower.”

As state tax reform debates heat up in the Tar Heel state, it’s time for state legislators to take notice.