If high taxes pay for high quality of life, why are people moving to low-tax states? (2024)
A common response when we highlight Minnesota’s high taxes is to say that they are the price we pay for our state’s high quality of life. The data show that this is not true: there is no relationship between higher taxes and better quality of life. But there is a more basic objection to this argument: if high taxes are the price we pay for a high quality of life, why are people moving away from higher tax states and towards lower tax ones?
In our new report, ‘Taxes and Migration Minnesotans on the Move to Lower Tax States,’we examine the relationship between average tax burdens in the fifty states and District of Columbia over the period 2011 to 2018 and the ratio of domestic in-migrants to out-migrants from each of the fifty states and District of Columbia over the period 2011-2012 to 2018-2019. A ratio above 1.0 means that the state gained residents on net and a ratio below 1.0 means that the state lost residents on net.
Figure 1 shows this relationship. Consistent with the existing literature, we see a negative relationship between the tax burden in a state and the ratio of in-migrants to out-migrants: in other words, the higher the state’s tax burden the greater, on average, the ratio of out-migrants to in-migrants. Put more simply, again, the lower (higher) the tax burden in the state the greater its migration gain (loss).
The data indicate a highly significant relationship between state tax burdens and migration patterns, with a p-value of 0.000. For the data in Figure 1, the R2 is 0.2581, meaning that 25.8 percent of the variation in migration ratios can be attributed to variations in state tax burdens.
Even if you think the data is wrong and that higher taxes do lead to a higher quality of life, you have to ask why, when people vote with their feet, they generally vote for lower taxes? Presumably they are not on the hunt for a lower quality of life.
John Phelan
John Phelan is an Economist at the Center of the American Experiment. [emailprotected]
Advocates of high taxes say that people don't relocate because of taxes. It's true that in surveys that ask people why they moved, migrants list plenty of reasons, including housing costs, economic opportunity, and pursuit of a better overall quality of life.
Charity is a time-worn way the ultra-rich reduce their taxes — and it has the added bonus of putting a nice luster on their reputation. Many charitable organizations set up by billionaires are tax-exempt, and charitable donations are tax deductible.
Lower individual tax rates have increased disposable income throughout the economy, increasing consumer spending on goods and services, including retail purchases. Increased consumer spending has driven demand, leading to higher sales for retailers across the country.
And the 9.9 percent who moved for a “new job or job transfer” likely took into account income taxes and benefited from the job opportunities related to the state's economic competitiveness. Though people move for many different reasons, the evidence suggests taxes are at least one factor—both directly and indirectly.
While nearly everyone must file federal taxes, residents in states without income taxes will benefit from a lower overall tax bill each tax season. This can be a boost to one's financial health.
As a group, the rich had 10.1 percent of total AGI and paid 20.4 percent of total federal individual income tax. Meanwhile, the superrich had 6.5 percent of total AGI and paid 12.3 percent of total federal income tax.
The highest-earning Americans pay the most in combined federal, state and local taxes, the Tax Foundation noted. As a group, the top quintile — those earning $130,001 or more annually — paid $3.23 trillion in taxes, compared with $142 billion for the bottom quintile, or those earning less than $25,000.
If you are talking about a freer, richer society, then the answer is no. If you are talking about increased social security, economic equality, then the answer would be yes. Higher or lower, it wont matter.
High marginal tax rates, the amount of additional tax paid for every additional dollar earned as income, reduce individual incentives to work and business incentives to invest. That means individual income taxes also have a negative effect on the economy.
High-Income Taxpayers Paid the Majority of Federal Income Taxes. In 2021, the bottom half of taxpayers earned 10.4 percent of total AGI and paid 2.3 percent of all federal individual income taxes. The top 1 percent earned 26.3 percent of total AGI and paid 45.8 percent of all federal income taxes.
For example, the top rate kicks in at or above $1 million in California (when the “millionaire's tax” surcharge is included), Massachusetts, New Jersey, New York, and the District of Columbia. The table below shows how each state's individual income tax is structured.
It is not just wealthy residents leaving; businesses are also exiting the state — again due to high tax rates, punitive regulations, high labor, utility and energy costs, among other things.
California's state budget supports an array of programs and services that touch the lives of all Californians – from schools and colleges to health care and public safety to highways and environmental protection.
Top 5 Best States for Families To Live on the Average Salary
Connecticut: The Best State Financially for Families. Among all states, Connecticut provides the most optimal conditions for a comfortable lifestyle, with the average two-earner household earning $144,146 a year. ...
Florida primarily makes up for its lack of an income tax with its sales tax, which generates around 80% of the state's revenue. Florida's sales tax is imposed on services and goods, and both the state and county levy a certain percentage.
Which Are the Tax-Free States? As of 2023, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners.
In fact, because they spend all of their income rather than saving it, it works out that they pay a larger percentage of their income in taxes than many rich people. Rich people avoid taxes on a lot of their income because of tax breaks that poor people can't afford.
However, there is enough justification that the rich should be taxed more than the poor. Those who benefit more from governments, have better social security protection and have access to better education and health care should pay more taxes.
The biggest reason that Buffett pays so little in taxes is because a significant portion of his income comes from capital gains, which are taxed at a lower rate than ordinary income.
The newly released report covers Tax Year 2021 (for tax forms filed in 2022). The newest data reveals that the top 1 percent of earners, defined as those with incomes over $682,577, paid nearly 46 percent of all income taxes – marking the highest level in the available data.
Introduction: My name is Eusebia Nader, I am a encouraging, brainy, lively, nice, famous, healthy, clever person who loves writing and wants to share my knowledge and understanding with you.
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