A recent report from the IRS on interstate income migration trends showed continued and significant deterioration for states with high tax rates, poor government financial performance, and low trust in state government. This “latest” data is only for 2019 but helps to underscore the growing pressures in financially stressed jurisdictions before the impact of the pandemic (and government lockdowns) in 2020.
What distinguishes states with high-income inmigration from those losing taxable income to other states? Not surprisingly, state government financial matters that taxpayers care about appear to play a key role.
In 2019, the five states with the highest AGI inmigration on a per-taxpayer basis were (in order from least to most) South Carolina, Arizona, Nevada, Idaho and Florida. The five states with the highest AGI outmigration on a per-taxpayer basis were (in order) Maryland, New Jersey, Connecticut, New York, and Illinois.
The five inmigration states ranked, on average, 18th among the 48 continental states on Truth in Accounting’s “Taxpayer Burden” measure of state government financial condition. They ranked 14th, on average, on WalletHub’s “Tax Burden” measure of income paid towards state and local taxes. They ranked 12th, on average, in the frequency of “truly balanced” budgets – keeping expenses below revenue, based on accrual, not cash-based, accounting principles.
Conversely, the five outmigration states ranked, on average, 43rd among the 48 continental states in Truth in Accounting’s latest “Taxpayer Burden” measure. They also ranked 43rd, on average, on WalletHub’s latest “Tax Burden”. They ranked 44th, on average, on the frequency of “truly balanced budgets.”
Back in 2015, Gallup did a poll on trust in state government. (Gallup hasn’t polled people on this measure since then.) How did the states that performed best (and worst) in inspiring citizen trust measure up on the latest IRS AGI migration rankings?
In 2015, the five states with the lowest rankings on trust in state government were (in order) Louisiana, New Jersey, Connecticut, Rhode Island, and (dead last) Illinois. The five states performing worst on trust in state government in 2015 ranked, on average, 40th in AGI migration in 2019. And the states that ranked worst on trust may have earned their polling performance, looking at their government’s financial condition and record on truly living up to advertised “balanced budget” requirements.
Back in 1970, Albert O. Hirschman penned a valuable book titled “Exit, Voice & Loyalty.” The book developed a model for considering how members of organizations/states can respond to perceived shortcomings in performance. Simplifying, they can speak up, or ship out, and loyalty matters for that choice.
The recent IRS migration data may help illustrate the nature of the demand for federal government “stimulus” that arrived in recent months, which provided significant assistance for especially-stressed states that were facing a loss of resources internally.
The “American Rescue Plan” and related federal government “stimulus” spending may have served as means for socializing losses from state and local government financial mismanagement. I hope those responses don’t ultimately undermine loyalty to the federal government of the United States.
For that matter, Gallup polls on trust in the federal government aren’t exactly encouraging, either.