Top 10 inbound vs. top 10 outbound US states in 2017: How do they compare on a variety of tax burden, business climate, fiscal health and economic measures

From Mark Perry.

"US state-to-state migration flow data for 2017 became available recently from the Census Bureau and this is an update to an earlier post based on 2016 data that attempts to answer the question: What significant differences are there, if any, between America’s top ten inbound and top ten outbound states when they are compared on a variety of measures of economic performance, business climate, business and individual taxes, fiscal health, and labor market dynamism?

To determine the top ten inbound and outbound states based on state-to-state migration patterns displayed in the table above (click to enlarge), I ranked each US state by the percentage of inbound vs. outbound moves in 2017 using the Census Bureau data in this Excel file. For example, for the state of Illinois, there was a total of 534,527 moves in 2017 — 339,435 outbound moves (63.5% of the total) and 195,092 inbound moves (36.5% of the total), for a -27% net outflow percentage, making Illinois the No. 1 outbound US state last year. For Arizona, there were 424,941 moves, and 61.6% were inbound (261,727) and 38.4% (163,241) were inbound for a +23.2% net inflow, making Arizona the No. 1 inbound US state in 2017. The top ten inbound and top ten outbound states are ranked across the first row of each group above — Arizona No. 1 inbound state to Idaho No. 10, and Illinois No. 1 outbound state to No. 10 Massachusetts. In total, there was a net outflow of 638,500 Americans from the top ten outbound states, and a net inflow of nearly half a million American moving to the top ten inbound states above.

Q: Based on 2017 Census Bureau data, what significant differences are there, if any, between the top ten inbound and top ten outbound states when they are compared on a variety of measures of economic performance, business climate, business and individual taxes, fiscal health, and labor market dynamism? Assuming that many Americans and US companies “move/vote with their feet” when they relocate from one state to another, is there any empirical evidence to suggest that Americans are moving to states that are relatively more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens and more economic and job opportunities, from states that are relatively more economically stagnant with higher taxes and more regulations and with fewer economic and job opportunities?

The table above (click to enlarge) summarizes a comparison between the two groups of US states (top ten inbound and top ten outbound) on ten different measures of economic performance, labor market dynamism, business climate, tax climate and fiscal health for those ten states. And on each of those ten measures, it does appear that the top ten inbound states are on average out-performing the top ten outbound states, suggesting that migration patterns in the US do reflect Americans and firms “voting/moving with their feet” from high-tax, business-unfriendly, fiscally unhealthy, economically stagnant states to lower-tax, more business-friendly, fiscally healthy and economically vibrant states. Let’s review those ten measures, one at a time:

1. Right-to-Work. Six of the top ten inbound states are Right-to-Work (RTW) states, while eight of the top ten outbound states are forced unionism states (all except Louisiana and Wyoming). According to many studies like this one by my AEI colleague Jeff Eisenach (emphasis mine):

There is a large body of rigorous economic research on the effects of RTW laws on economic performance. Overall, that research suggests that RTW laws have a positive impact on economic growth, employment, investment, and innovation, both directly and indirectly.

Therefore, it would make sense that Americans are leaving states that are more likely to be forced unionism states for greater job opportunities in states that are more likely to be RTW states.

2. State Tax Burden. The Tax Foundation produces an annual report on various tax burdens by US state, here’s the most recent one “Facts & Figures 2018: How Does Your State Compare?” One of the measures reported by The Tax Foundation is the total tax burden in each state, measured as the percentage of a state’s income that goes to taxes for state and local governments (income taxes, property taxes and sales taxes). The average state total tax burden for the top ten inbound states is 9.0% compared to the 10.1% average for the top ten outbound states. Five of the six US states with the highest total state tax burden (New York, Connecticut, New Jersey, California, and Illinois) are all in the ten highest outbound states.

3. Income Taxes. The average top individual income tax rate in the top ten inbound states is 4.6% compared to an average of 6.5% in the top outbound states. Likewise, the average top corporate tax rate in the top five inbound states is 4.8% compared to 7.4% in the top ten outbound states. It’s an ironclad law of economics that if you tax something you get less of it, and it’s, therefore, no surprise that Americans and businesses are leaving relatively high tax states for relatively low tax states.

4. Forbes Best States for Business. Based on its most recent annual state ranking that measures six business categories: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life, Forbes rated North Carolina again as the best US state for business last year. Two of the other states in the top ten inbound states (Washington and Florida) ranked in the top ten best US states for business, and all states in that group ranked in the top half of US states for business climate except Montana and New Hampshire. The average ranking for the top ten states was 17 (top half of US states for best business climate). Each of the top ten outbound states except Massachusetts ranked in the bottom half of state for business climate and the average ranking for business climate for the top ten outbound states was 36 out of 50.

5. Business Tax Climate Rankings. Every year The Tax Foundation creates its State Business Tax Climate Index based on each US state’s corporate income taxes, individual income taxes, sales taxes, property taxes and unemployment insurance taxes. For the most recent Tax Foundation rankings, five of the top ten outbound states (New York, New Jersey, Connecticut, Louisiana and California) were among the seven US states with the worst business tax climate and New York, California, and New Jersey ranked as the three worst US states. For the top ten inbound states, five of those states (Nevada, Oregon, New Hampshire, Montana and Florida) ranked among the top nine US states for business climate. The average ranking for the top ten inbound states is 15 (top half) compared to an average ranking of 34 (bottom half) for the top ten outbound states.

6. State Fiscal Rankings. In an annual study, The Mercatus Center ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits, here’s the most recent report for 2018. According to last year’s report, “The fiscal health of America’s states affects all its citizens. Indicators of fiscal health come in a variety of forms—from a state’s ability to attract businesses and how much it taxes to what services it provides and how well it keeps its promises to public-sector employees.” In the 2018 Mercatus report, five of the top ten inbound states ranked in the top 12 US states for the best fiscal health, and Illinois, Connecticut, New Jersey and Massachusetts (all in the top ten outbound states) as the four worst US states for fiscal health. The average fiscal health ranking for the top ten inbound states was 17 (top one-third) compared to an average ranking of 37 for the top ten outbound states (bottom one-third).

7. Economic Performance. The next three categories above show economic performance measures for each of the 20 states for: a) state real GDP growth rate in the first half of 2018, b) the state jobless rate in November 2018 and c) employment growth over the most recent one-year period through November 2018. For the top ten inbound states, the average GDP growth rate is 4.1%, the average November jobless rate is 3.6%, and the average annual job growth rate is 2.5%. In contrast, the average figures for the ten outbound states are 2.2% for GDP growth, 4.2% for the jobless rate, and 1.5% for annual job growth. In other words, compared to the outbound states, output growth was about twice as high in the inbound states on average during the first half of this year (4.1% vs. 2.2%), the average November jobless rate was more than one-half percentage point lower (3.6% vs. 4.2%) and annual employment growth is two-thirds higher (2.5% vs. 1.5%).

Those three important economic indicators suggest that the inbound states on average are stronger economically than the outbound states with faster economic growth, and more robust labor markets with lower jobless rates and greater rates of job creation.

Bottom Line: Based on state-to-state migration data from the Census Bureau for 2017, the migration patterns of US households (and businesses) followed predictable patterns, reflecting differences among states in economic growth, tax burdens, business climate, labor market robustness and fiscal health. To answer the questions posed above, there are significant differences between the top ten inbound and top ten outbound states when they are compared on a variety of measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal health, and labor market dynamism. There is empirical evidence that Americans and businesses do “vote with their feet” when they relocate from one state to another, and the evidence suggests that Americans are moving from states that are more economically stagnant, fiscally unhealthy states with higher tax burdens and unfriendly business climates with fewer economic and job opportunities, to fiscally sound states that are more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens and more economic and job opportunities."