Vagabond shoes, longing to stray, cost states billions in lost taxpayer income

Americans are rolling stones. In a typical year, some 38 million people change residences within the domestic United States. While moving can be a thrill for those folks heading to new opportunities, it's a real downer for the counties and states that lose taxpayer income when more people leave than arrive.

The biggest loser, New York State, saw nearly nearly $54 billion in adjusted gross income disappear as a result of taxpayer migration between 1995 and 2006, according to a new study from the Center of Applied Economics at the University of Kansas School of Business. "As a practical matter, that's money that left the state and went to another state," says the study's lead author, Arthur Hall, executive director of the Center for Applied Economics. "That is what happens as it relates to migrations. Whether people are getting richer, and richer and that replaces that lost income, we don't know that."
While that may have been the case in the past, people this year don't seem to be getting rich enough to offset the income loss in states with net taxpayer outflows. A separate study from the Nelson A. Rockefeller Institute of Government finds that for the first quarter this year, state tax collections dropped 11.7 percent -- the sharpest decline in the 46 years for which quarterly data are available. No wonder so many states are laying off thousands, shuttering parks and cultural institutions, and delaying payments to vendors and staff.

Taxpayer migration takes its toll. Hall's study finds that every year, the county-to-county migration of taxpayers results in a reallocation of some $307 billion in adjusted gross income among 7.4 million taxpayers: the equivalent of the state of Michigan moving every year, Hall says. "People move to opportunity," he says. "All things being equal, people move to places with small government and lower taxes. "With some notable exceptions, people are also moving to warmer climes and smaller urban centers.

Measuring migration-related adjusted gross income etween 1995 and 2006, these were the biggest losers:

New York: -$53.99 billion
California: -$29.24 billion
Illinois: -$25.25 billion
New Jersey: -$16.61 billion
Ohio: -$15.31 billion

And the biggest winners:

Florida: +$77.96 billion
Arizona: +$22.44 billion
North Carolina: +$17.90 billion
Nevada: +$15.67 billion
Texas: +$14.46 billion

The study takes into account that people coming and going have different income levels that may affect the total sum with which a state is left; Wyoming gained $1.08 billion in inflation-adjusted net income, even though 11,200 taxpayers left while only 10,927 moved in. That's because the incoming taxpayers averaged incomes of $47,393 while the outgoing ones averaged only $38,155.

Of course it's not easy for states to control why people leave. Your state may be Michigan (loss of $11.43 billion in adjusted gross income), which isn't known for its balmy winters, or maybe it's top-ranked Florida, where the sun always shines. Either way, Hall says. "When you're at the state or county level, what you really have is the ability to offer value-added services at a fair price," Hall says. "If you're not doing that, you run the risk of driving people away." Of course, providing a high-level of service without tweaking the tax rate is not always an easy proposition these days.

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