PoliGraph: Will tax increases prompt people to flee the state?

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During debate over the House tax bill last week, Rep. Linda Runbeck made this common argument: If the Legislature raises taxes, people will move and take their tax dollars with them.

“This bill is going to cause jobs to leave. It’s going to cause the successful people to leave. It’s going to cause the productive, hardworking people to leave,” she said. “About $4 billion from Minnesota has left to go to states that are lower taxed states. That’s the trend. $2 trillion has moved across state lines over the last 15 years… and where is it going? It’s going to the low tax states in the country.”

It’s true that Minnesotans leave the state every year, sometimes for places like Florida and Arizona that have lower taxes. But they leave for lots of reasons – including winters that haven’t ended by early May.

The Evidence

The House tax bill would impose a fourth-tier income tax rate of 8.49 percent on couples with an annual taxable income of $400,000 or more and an additional temporary surcharge on couples making more than $500,000 after deductions.

Runbeck points to several sources to support her claim that people will flee the state, including a 2010 report by the conservative Freedom Foundation of Minnesota that looked at why Minnesotans leave.

The report found that between 1995 and 2007, people who left the state took roughly $3.7 billion in income with them. Those households – particularly wealthier ones – migrated all over the United States, but most went to Arizona, Florida, Colorado, California and Texas, according to the report.

(Data from the Tax Foundation, a group that advocates for lower taxes, shows a slightly different trend. During that period of time, most Minnesotans left for Wisconsin, followed by California, North Dakota, Texas and Florida.)

Runbeck also points to How Money Walks, a book written by Travis Brown that shows that Americans have taken $2 trillion in adjusted gross income across state lines over the last 15 years.

But there are some flaws in Runbeck’s statement.

First, between 1995 and 2007, Minnesotans migrated to states that didn’t necessarily have a more favorable income tax climate. California is an example.

Secondly, people left Minnesota for a lot of reasons, and taxes are just one of them, says Richard Morrison, who is a spokesman for the Tax Foundation.

“There are any number of reasons why someone might choose to move from one state to another,” he said. “There are a bunch of financial reasons, and the tax burden might be one of them. But there are different things, like whether this is a place where you want to retire, this is a place you want to move because it has nicer weather, whether you want to be closer to family.”

Jobs and cheaper housing are also reasons people tend to leave one state for another.

It’s true that slightly more people are leaving Minnesota for other states than are coming here. But former state demographer Tom Gillaspy said Minnesota is doing pretty well when migrants from other countries are taken into account.

Gillaspy also said that high taxes don’t necessarily lead to out-migration.

“In the nineties we saw more net inflow of people in higher income brackets and that was when taxes were higher,” Gillaspy said. “And during the Pawlenty administration, we had less of an inflow and more of an outflow.”

State demographer Susan Brower said that most of the people leaving Minnesota are either college age or retirees, two groups that are more likely to migrate in the first place.

The Verdict

Runbeck’s claim has some truth to it: more people have left Minnesota for other states in recent years, taking with them tax dollars. In some cases, Minnesotans migrated to places that have lower taxes. At least one report pegs the amount at $3.7 billion – nearly the $4 billion Runbeck states.

However, her overall point doesn’t hold up. Runbeck implies that these tax dollars are leaving Minnesota because of the state’s tax structure and that more will leave if the Legislature decides to increase taxes on the state’s wealthiest.

There’s no evidence to suggest that’s the case because people leave Minnesota for lots of reasons.

Runbeck’s claim is misleading

SOURCES

Freedom Foundation of Minnesota, Minnesota’s Out-Migration Compounds State Budget Woes, February 2010

The Tax Foundation, Migration Data Interactive, accessed April 25, 2013

The Internal Revenue Services, Tax Stats-Migration Data, accessed May 2, 2013

Amazon.com, How Money Walks, by Travis Brown

Rep. Linda Runbeck, R-Circle Pines

Richard Morrison, spokesman, Tax Foundation

Susan Brower, Minnesota State Demographer

Tom Gillaspy, former Minnesota State Demographer

Ryan Brown, spokesman , Minnesota Department of Revenue

  • TheTruth

    She actually “is” right accept for the “where to” part. I figure that if I have to pay taxes this high I might as well pay them in a state that has a better climate. However, I know “many” people I grew up with who moved over into WI because housing and many other things were “much” cheaper, so with that in mind, she is right. When MN raises taxes everything costs much more, it DOES trickle down. I can see now people that smoke heading to South Dakota to buy cigarettes due to the hike costing them “much” more in the long run than making a trip over there once a month. This is “lost” revenue. People get angry when their taxes go up, but the degree the MN is going to raise them this time has many people thinking of leaving. MN needs to “get it”, we are NOT NY and with our wages extremely behind theirs Minnesotans cannot afford these taxes along with the inflation that has NOT kept up with wages. With that said, inflation is on track, but wages are NOT. If everything doubles or triples in price, which has happened extremely in the last decade and wages do not double or triple the math doesn’t work out. As far as home sales going up, they may be, but this does not mean as many are selling or as many that “should be.” The government did the laws “wrong” again and the banks are wrong again. They went from one extreme to another and no one can get a loan once again. All they needed to do was not put someone in a home that was within people’s income and instead they tightened it so much that no one can get a loan. Raising taxes has to happen, but MN is going overboard again, period.

  • Mac Hall

    Let’s accept the fact that some people will retire to other states, the question is should those states tax income that was earned while the person was employed in Minnesota ?

    Currently, Minnesota exempts taxes on monies put into a 401k plan until the monies are withdrawn … the theory is that the government is willing to wait for a person to eventually pay, even if they are in a lower tax bracket. That works for the Federal Government, but that means that Minnesota loses when the person moves to Texas or Florida (even if they have a “summer” home in Minnesota).

    The state could generate a lot of money by taxing 401k contributions and not taxing withdrawals … that might even encourage some people to retain Minnesota as their “legal” residence.

    BTW … does anybody look at voting records to ensure that part-time residents do not vote in both states ?