Tax Update: Americans moved to low-tax states in 2023
- February 1, 2024: Vol. 11, Number 2

Tax Update: Americans moved to low-tax states in 2023

by Katherine Loughead

Americans were on the move in 2023, and many chose low-tax states over high-tax ones. That’s the finding of recent U.S. Census Bureau interstate migration data and commercial datasets released by U-Haul and United Van Lines.

While international migration contributed to population growth at the national level, interstate migration was the key driver of net population changes at the state level. The U.S. Census Bureau’s most recent interstate migration estimates show New York City lost the greatest share of its population (1.1 percent) to other states between July 2022 and July 2023. Not far behind was California, which lost 0.9 percent of its residents, followed by Hawaii (0.8 percent), Alaska (also 0.8 percent), and Illinois (0.7 percent).

At the other end of the spectrum, South Carolina saw the greatest population growth from net domestic inbound migration (1.6 percent), followed by Delaware (1.0 percent), and North Carolina, Tennessee and Florida (all 0.9 percent).

This population shift paints a clear picture: Americans are leaving high-tax, high-cost-of-living states in favor of lower-tax, lower-cost alternatives. Of the 32 states whose overall state and local tax burdens per capita were below the national average in 2022, 24 experienced net inbound migration in fiscal year 2023. Meanwhile, of the 18 states and District of Columbia with tax burdens per capita at or above the national average, 14 of those jurisdictions experienced net outbound migration.

Though only one component of overall tax burdens, the individual income tax is particularly illustrative here. In the top one-third of states for population growth attributable to domestic migration, the average combined top marginal state income tax rate is about 3.8 percent. In the bottom third (including D.C.), it’s 3.5 percentage points higher, at about 7.3 percent.

Five states in the top one-third forgo taxes on wage income (Florida, South Dakota, Tennessee and Texas, as well as Washington state, which taxes capital gains income but not wage income). Even the highest top marginal rate in that cohort — Maine’s 7.15 percent — is still lower than the average top rate in the bottom one-third of states, and lower than many of its northeastern U.S. peers.

Just as states with lower income tax rates — or no income tax at all — have proven highly attractive to interstate movers, so have states with more neutral tax structures. Of the 12 states that levy single-rate, as opposed to graduated-rate, taxes on wage and salary income, all but four (Illinois, Michigan, Mississippi and Pennsylvania) experienced net inbound migration. It is also worth noting that on the 2023 State Business Tax Climate Index, which evaluated the competitiveness of state tax structures as of July 1, 2022, of the 25 top-ranking states, 20 experienced net inbound migration. Meanwhile, of the 25 lowest-ranking states on the Index, 16 and D.C. experienced net outbound migration.

People move for many reasons. Sometimes taxes are expressly part of the calculation, and oftentimes they play an indirect role by contributing to a broadly favorable economic environment. And other times, of course, they don’t factor in at all. The census data and these industry studies cannot tell us exactly why each person moved, but there is no denying a very strong correlation between low-tax, low-cost states and population growth, as well as a strong correlation between good tax structures and population growth. Given that many states, over the past few years, have responded to robust revenues and heightened state competition by cutting taxes and improving their tax structures — such as by moving from graduated-rate to single-rate income taxes — these trends may only get more pronounced.

The pandemic accelerated changes to the way we live and work, making it far easier for people to move — and they have.


Katherine Loughead is senior policy analyst and research manager at the Tax Foundation. The original and complete version of her report is on the Tax Foundation website here.

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