Advanced Search
Debunking the Tax Migration Myth
Minnesota progressives have long advocated for a fairer tax system—one in which the state’s wealthiest pay a proportion of their salaries consistent with what middle-class families pay.
In opposition, the state’s conservatives have argued higher taxes will hurt job creators and drive away high income earners, thus lowering our overall state revenue.
A new report out from the Center for Budget and Policy Priorities (CBPP) proves this rhetoric is just one more unfounded conservative talking point.
The CBPP report analyzes data from states—New Jersey, Maryland, Florida, California, and Oregon—which are often cited as evidence income tax increases drive high income families out of a state. It shows the flaws in arguments for each state.
In the coming days, we’ll look at each state and show why factors other than income tax accounted for migration patterns.
Oregon
In 2009, the Oregon Business Council commissioned a study from consulting firm ECONorthwest that purported to show that a 2009 income tax increase on high income households (beginning at $250,000 for married households, $125,000 for singles) in Oregon caused significant numbers of affluent taxpayers to leave for neighboring Washington, where there is no income tax.
However, the study failed to take into account the fact that Oregon taxes the income of people who work in the state even if they live elsewhere, so people could not avoid Oregon income taxes by moving to Washington or any other state if they continued to work in Oregon.
Differences in housing prices and other factors likely had far more to do with migration from Oregon to Washington.
An economic boom in Portland caused housing prices to soar as young tech workers moved in; meanwhile, housing in neighboring Clark County, Washington remained affordable and supply abundant.
As Portland became more geared toward a youth culture, Clark County became more attractive to families with children due to its reputation for better schools and safer streets.
ECONorthwest also argued that a 2003 income tax increase in Multnomah County, where Portland is located, caused wealthy households to leave that county for other parts of the state.
While the percentage of wealthy Oregonians that reside in Multnomah County did decline, that was almost certainly due to the bursting of the dot-com bubble, which hit Multnomah more severely than just about any other county in the state. The wealthy households did not leave Multnomah County—they just became less wealthy relative to other parts of the state.
In general, when non-tax factors are taken into account, the apparent tax-driven loss of affluent households in Oregon dissipated. Furthermore, even if the entire out-migration observed by ECONorthwest were due to tax factors, it still accounted for only about 0.34% of the income earned in Portland’s Oregon suburbs.
Posted in Fiscal Policy | Related Topics: Income Tax Tax Fairness
12 Comments
September 15, 2011 at 1:46 pm
Mike D and Bill Hamm, I really don’t need a basic civics lesson, you two could use a little history lesson however. In 1967 Harold LaVander proposed the first ever Minnesota sales tax. The state senate and house passed it. At the time the senate was 45-22 GOP majority over the DFL and the house was 93-42 GOP over the DFL so all those responsible for MN Sales tax were GOP..nice try but no cigar!
August 26, 2011 at 4:12 pm
Mikerust,
Perhaps an elementary civics class is in order. A Governor can not introduce a Bill nor can a Governor vote on a Bill. Only the Legislative Branch passes introduces, votes & passes bills. So the DFL House & DFL Senate passed the Sales Tax Bill.
August 26, 2011 at 2:12 pm
Excuse me Mikerust, did the republicans hold both the House and Senate too? You don’t get to lay that blame all off on that Governor any more than I could lay the blame for the present budget on this Governor. Flip the tables and suddenly it’s the Governors fault, the reality is that both sides are at fault in both cases.
August 26, 2011 at 8:50 am
It was the DFL who brought us the most unfair regressive tax of all, the sales tax. sorry Bill, It was Harold LaVander that brought us the sales tax.
August 26, 2011 at 7:10 am
John, your first line is a lie, “Minnesota progressives have long advocated for a fair tax system”. Even when you had a DFL controled House and Senate coupled with a DFL Governor, you progressives did not give us a fair tax system. Then you go on to say, “one in which the states wealthiest pay a portion *** consistant with Middle class***. Minnesota has never had a fair tax system in my lifetime. It was the DFL who brought us the most unfair regressive tax of all, the sales tax. Like most Minnesotans I am sorely tired of this stupid class warfare line from those spinning these lies. If fair taxes is the goal it seems we need a citizen board to put together a proposal that these partisan legislators can get behind as it will never come from the likes of you.
August 25, 2011 at 1:44 pm
Mike,
You are correct that every line matters. However, to assume that taxes will drive a company or person from one state to another, you have to also assume that everything else, including revenue, stays the same. It definitely does not!
August 25, 2011 at 1:11 pm
Wayne,
Businesses are interested in maximizing earnings/profits. Therefore, while top line sales is indeed important, every expense line is important to minimize, including taxes, in order to maximize earnings after taxes.
August 25, 2011 at 1:08 pm
Wayne,
If my premise was wrong, then why did these three states eliminate their short term “millionaire” “tax the rich” bills? The fact is they eliminated these “tax the rich” schemes since they lost the millionaires to other more competitive states and the actual state revenue from the rich declined.
August 25, 2011 at 10:36 am
This is similar to the argument over how taxes drive all business purchasing and hiring decisions. A business is far more concerned about SALES than any single expense line, and similarly, people choose to live somewhere based on many more important factors than taxes.
My most important factor: How am I going to make a living there? A job or business that pays well overcomes a lot of other expenses. I moved from ND to MN in 1996 and paid more taxes but still had a lot more money in the bank because the new job paid more (a LOT more). I am now in WI because the job here paid better, not anything to do with taxes.
August 25, 2011 at 9:09 am
@ Mike: Read the article that’s linked to the main article. It refutes your claim that that taxing the rich was a failure in New York, New Jersey and Maryland. Just saying it doesn’t make it true.
August 25, 2011 at 8:50 am
John, I expect better from your articles. The “tax the rich” test was a failure in Maryland, New Jersey and New York. Each implemented a “tax the rich” or “millionaire” tax and each saw a migration of the “rich” out of their states.
If you really believe your hypothesis, then let’s eliminate state income taxes as a federal deduction. Let’s see what happens. 
Dan Conner says:
September 23, 2011 at 12:46 pm
Great points Mikerust. I think conservatives hold beliefs rooted in such enotional factors as selfishness and greed. Then they seek rationales to give these perversions a cloak of decency. However, selfishness is selfishness and greed is greed. The poorly documented rationales for migration of wealth is foolish. I guess we should assume all millionaires and billionaires have left high taxing states? Well, guess what? It’s BS. Then, mike needs to explain why it is that the highest taxing states have the highest standard of living. That’ what I feel is most important…the benefit to all the people, not a tiny number of super rich.
All take state prosperity over having the most number of millionaires anytime. I think conservatives need to start thinking about who this country is for.