The Nation's Pulse

We’re Picking Up Good Migrations

The IRS backs down on concealing the number of people fleeing high-tax states.

By From the February 2013 issue

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If you run a high-tax, budget-busting state, the embarrassing government statistics you fear the most are probably the migratory data numbers put out by the Internal Revenue Service and U.S. Census Bureau.

The figures show the number of people moving into and out of every county and state in the nation, along with their income levels. It’s an invaluable guide to how people vote with their feet. It won’t surprise you to learn they tend to flee high-tax states such as California and Illinois for low-tax states such as Texas and Florida.

No one knows who was behind it, but the IRS suddenly decided in December to end the data program after 21 years. “We were just told this morning that the program is indeed going to be discontinued,” an IRS economist said in an e-mail obtained by the Daily Caller. “It is not our decision at all, and we are very disappointed.”

After some criticism, the IRS at first admitted the program was being “discontinued.”

IRS officials told the Washington Examiner that scholars and citizens could instead rely on the Census Bureau’s geographical mobility data, which is derived from two surveys of the population. But as the Examiner noted, surveys are not hard data: “It would be as if the federal government cancelled elections and the counting of actual votes and told us to use opinion polls to pick our leaders instead.”

California’s bureaucratic-industrial complex was no doubt pleased. Following the November passage of a tax increase by voters, Californians will now be paying the nation’s highest marginal tax rates. The top state income tax rate is now 13.3 percent. If the Bush tax cuts are not extended, the effective marginal tax rate on a high-income Californian will be nearly 52 percent, according to one study. Such a tax burden would be even higher than New York City’s.

California’s progressive income tax system has long been criticized for being overly dependent on a small sliver of the population, fewer than 200,000 high-income earners, whose salaries, capital gains, and dividend income keep the state afloat. Golfer Tiger Woods left California for income tax–free Florida years ago, and inventor Gilbert Hyatt has packed up for Nevada to avoid taxes on his royalties.

What the IRS migratory data program did was put statistical meat on those anecdotal bones. The Manhattan Institute released a report last year entitled “The Great California Exodus” that used the IRS data to show just how many people of all income levels are fleeing the Golden State.

The report found that since 1990, California has lost nearly 3.4 million residents to other states. (The top 10 destinations were Texas, Nevada, Arizona, Oregon, Washington, Colorado, Idaho, Utah, Georgia, and South Carolina.) Over the last decade, an average of 225,000 residents left the state each year.

The Manhattan Institute concluded: “States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.”

Nor is California the only state exporting productive citizens and businesses. Last May, the New York Post headlined a story, “Outgoing income: Millions flee New York’s tax burden$.” The article, which relied heavily on the IRS numbers, began “New York state tops the nation in one key export—people fleeing high taxes.”

Other jurisdictions aren’t far behind. Change Maryland, a free-market think tank, used the IRS data to discover that 11,455 Marylanders changed their places of residence to lower-cost Virginia between 2007 and 2010 after Democratic governor Martin O’Malley dramatically hiked income taxes. The loss of tax revenue to Maryland totaled $390 million. In total, more than 31,000 Maryland residents took a hike and shifted their tax filing status in those three years. But Jim Pettit of Change Maryland said it would be impossible to continue tracking those figures without the IRS data. It sure sounded as if some liberal state officeholders might have leaned on the Obama administration to spare them some “inconvenient facts” about the consequences of their policies.

BUT THIS STORY has a happy ending. After much criticism that it was “airbrushing” data out of existence, the IRS apparently reversed course. Officials, in a classic case of bureaucratic gobbledygook, claimed the migration data program wasn’t really ending: “To improve data quality, the methodology for collecting and tabulating the population migration data was recently changed.”

Policies affect human behavior. As economist Arthur Laffer observes: “You have two locations, A and B. If you raise taxes in B and you lower them in A, producers and manufacturers and people are going to move from B to A.”

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About the Author

John H. Fund is a senior editor of The American Spectator and author of the Stealing Elections (Encounter Books).