The IRS on Friday released new data on state income migration that’s a reality check on state lawmakers ambitions to consistently raise taxes. Even after the pandemic, high-tax states continue to lose tens of billions of dollars in taxable income to low-tax states.
The latest IRS data includes the adjusted gross income (AGI) of tax filers who moved between and within states between 2022 and 2023. Not surprisingly, overall migration ebbed from the record highs set in 2020 and 2021 during the Covid lockdowns.
During the period, Illinois lost $6B in net taxable AGI as the wealthy fled. At the 4.95% income tax rate, that’s almost $300M in lost revenue. This figure doesn’t account for the other lost revenues from property, sales, and other tax revenue generators.
Most importantly, it doesn’t account for the companies and jobs that moved with those individuals. If there were a way to account for that as well, that $300M figure would balloon to a much higher number.
Yet states with the highest taxes continue to lose the most income to other states.
California lost a net $11.9B, mostly to Texas, Nevada and Arizona. Other big losers included New York at $9.9B, Massachusetts at $4B, and New Jersey at $2.6B.
These states impose hefty progressive income taxes that wallop high earners, businesses and the upper middle class. While the top state-and-local rate in New York City is 14.8%, individuals who make over $215,400 pay a ridiculous 10.7%.
Millionaires in California pay a top rate of 13.3%, but the state’s 9.3% bracket begins at $72,724. Illinois imposes a relatively low and flat 4.95% income tax rate at least for now, but our corporate and property taxes are among the highest in the country.
By comparison, all states without an income tax, except Alaska, gained income from interstate migration. Those states include Florida at $20.6B, Texas at $5.5B, and Tennessee at $2.8B.
Let me leave you with this…
This is happening against the backdrop of Washington State imposing a new tax on millionaires.
The law, signed by Gov. Bob Ferguson, creates an income tax for top earners beginning in 2028. The 9.9% tax will apply only to income over $1 million.
Until now, Washington hasn’t had a state income tax.
The levy comes as lawmakers and progressive groups in other states are debating their own new taxes on the wealthy. Proponents say the taxes are needed to combat inequality and plug budget holes expected from Republicans’ cuts to federal health and nutrition assistance programs in the One Big Beautiful Bill Act which was signed into law last year.
Ferguson said the law was needed to “rebalance an unfair system.”
Does anyone want to guess what will happen as a result? I’ll give you 99 guesses as long as the first 98 don’t count.
The wealthy affected by this tax will leave in droves. It’s not like they have to stay. They have money and can live anywhere they want.
And many of the businesses they own with the accompanying jobs will leave as well.
How much money in tax revenues will be lost as a result? Your guess is as good as mine, but I’ll bet you dimes to donuts it won’t be a small number. It’s the oldest law in taxation.
Voters vote with their feet. When are these lawmakers going to grow a brain?
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