Politics & Government

The Wealthy and Retired are Flocking to these Five States

For this year's delayed Tax Day, we're taking a look at new IRS data.

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For this year’s delayed Tax Day, we’re taking a look at new IRS data. Each year, the IRS reports the migration of tax returns, exemptions and Adjusted Gross Income (AGI) for each state. This data measures the inflow and outflow of residents moving between states based on the number of returns filed and gives the AGI of different income and age groups that migrate. At Data-Z, we have calculated the net AGI gain or loss for each state by taking the difference between inflow returns and outflow returns. According to our calculations, the five states with the highest net Adjusted Gross Income inmigration in 2018 were Florida, Arizona, Texas, North Carolina, and South Carolina.

In four of these five states, incoming residents between the ages of 55 and 65 brought in the largest percentage, representing over 29 percent of Florida’s incoming AGI. Texas was one exception where millenials between 26 and 35 had the highest percentage at 25 percent. As for highest AGI gain, Florida was the most successful at attracting residents and income, bringing a net AGI inmigration of $16.5 billion, with Texas and Arizona coming next with $3.5 billion and $3.4 billion. North and South Carolina followed with $2.9 billion and $2.5 billion, respectively.

These five states had a combined AGI inmigration of over $29 billion, while the biggest net losers, New York, Illinois, California, New Jersey and Maryland, had a combined AGI outmigration of $28.3 billion. So why did these five winning states perform so well in comparison to much larger, popular states? One thing these five states have in common is their location in the southern United States; they also all have a relatively low cost of living. The chart below shows that in all the states that lost the most AGI, except for Illinois, it would take well over $100 to purchase $100 of goods and services. (The “value of $100” measure is used by the Bureau of Economic Analysis to allow “comparisons of buying power across the 50 states and the District of Columbia, or from one metro area to another, for a given year.”)

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The chart below shows the average winter temperatures for January to March 2020. All five of the loser states had average winter temperatures below 45 degrees Fahrenheit, while four of the five winning states had average winter temperatures above 45 degrees. Of course temperatures vary over time, but it is safe to say that those five southern states are reliably warmer than the more northern states.

There may, however, be another, more important incentive to new residents: the tax structure in these areas. Florida and Texas do not have a state income tax, while Arizona and North Carolina have modest maximum income tax rates of 4.54 percent and 5.75 percent flat, respectively. South Carolina is an interesting case with a maximum income tax of 7 percent, but an effective property tax rate of 0.57 percent, the seventh lowest in the country. According to Wallethub, all of these states have total tax burdens lower than the U.S. average.

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While these five states are enjoying the economic benefits that new residents bring, the consequences of this migration contribute to AGI decreases in the states they’re leaving. New York, California, Illinois, New Jersey, and Maryland had the greatest AGI outmigration in 2018. They also all have total tax burdens above the national average according to Wallethub:

Not surprisingly all five of these states also happen to be ranked within the bottom 15 of our Financial State of the States 2019, with each carrying a Taxpayer Burden of at least $15,000.

While none of the top five winning states have a Taxpayer Surplus, perhaps the new residents and their influx of income dollars will help improve their government finances. That possibility is less likely, of course, if the incoming migrants bring with them the policies and practices of the states they are fleeing.

To explore more data about these and other states go to Data-Z.org where you can access over 400 data series for the states and 75 largest cities in the United States.

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