Tax day 101: Are some states driving people out with high state taxes?

Seven of eight states with the biggest population outflows have high state taxes.

Seth Perlman/AP/File
A tea party member participated in a tax day rally at the Illinois State Capitol in Springfield last year. Illinois, which has already seen significant outmigration this past decade, also has high taxes. Its budget woes could well signal future state taxes, which its governor is already proposing.

Among the millions of Americans paying taxes this week more than a few of them probably feel like hiring a moving van.

That's because what state they live in can have a big impact on they total tax bill. Some states, like California and New Jersey, have income taxes with top rates above 10 percent. Others charge no income tax at all.

Taxes are just one reason people might move. But it's interesting to note the overlap between tax rates and migration trends in the past decade.

Start by considering this: Nine states levy no income tax, according to the Tax Foundation, a research group in Washington. Those are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington State, and Wyoming.

Of those nine, all but one – Alaska – saw more people migrating in than out (within the 50 states) during the period from 2000 to 2008, according to research by the Empire Center for New York State Policy.

Eight states, by contrast, saw significant outward migration – an amount equal to 4 percent or more of their population – during that time. And many of those states also happen to have higher-than average taxes. (Since 2008, the impact of recession has slowed migration trends but generally hasn't reversed them.)

The eight states with big population outflows are California, Illinois, Louisiana, Massachusetts, Michigan, New Jersey, New York, and Rhode Island. The District of Columbia also saw heavy net migration outward.

Just how high are taxes in these states? A Tax Foundation map tells the story, along with numbers crunched by the Federation of Tax Administrators in Washington.

California, New Jersey, and New York have so-called "millionaires' taxes" (higher income-tax rates on the rich). The top rates in California and New Jersey are higher than 10 percent of income, and New York's is nearly that high. Four out of five other states with this kind of tax structure also saw out-migration during the decade, with Oregon the exception.

Some of the population-outflow states may not have particularly high taxes, but have seen migration affected by other factors: hurricane Katrina in Louisiana and the travails of the auto industry in Michigan.

Massachusetts ranks No. 10 in total taxes levied per person, according to the Federation of Tax Administrators. Rhode Island ranks high relative to other states in corporate, sales, and property taxes, the Tax Foundation says.

Also in New England, low-tax New Hampshire has added residents from domestic migration, while neighboring Vermont is among the states seeing outflows.

The consequences of migration can be significant. Most people migrating from one state to another aren't rich, but a good number are big-spending consumers, job-creating entrepreneurs, or philanthropists. One Boston College study found that New Jersey saw $168 billion in wealth walk out of the state from 2004 to 2008.

If you live in a high-tax state and are thinking about that moving-van idea, remember to think about not just current tax rates but potential future ones as well. States in "fiscal peril" from unmet budget obligations may have to raise taxes.

Illinois Gov. Pat Quinn (D) is pushing for higher taxes. More than half of states raised at least one tax or fee as they scrambled to close 2010 budget gaps, so the rising-tax states include some Sun Belt and mountain ones.

And of course, other economic factors such as job markets and housing costs will also affect that moving-van decision.

Also in Tax Day 101:

Part 1: Top mistakes to avoid on your tax return

Part 2: Who pays no income taxes on April 15?

Part 3: How to file a tax extension form to the IRS

Part 4: How is the tax code changing under Obama?

Part 5: Are some states driving people out with high state taxes?

Part 6: How some millionaires can owe no taxes

Part 7: The tax code needs a fix – but exactly how?

Part 8: 42 excuses you can't use to avoid filing IRS forms

Part 9: OK, now it's time to plan for next April 15

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