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

By Mark Perry.

"Note: This post has been updated to include a new 12th comparison measure — median home price by state.



US state-to-state migration flow data for 2018 became available recently from the Census Bureau and this is an update to an earlier post based on 2017 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, electricity and housing costs, 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 2018 using the Census Bureau data in this Excel file. For example, for the state of New York, there were a total of 712,461 moves in 2018 — 458,014 outbound moves (64.3% of the total) and 254,447 inbound moves (35.7% of the total), for a -28.6% net outflow percentage, making New York the No. 1 outbound US state last year. For Arizona, there were 453,300 moves, and 60.4% were inbound (273,714) and 39.6% (179,586) were outbound for a +23.2% net inflow, making Arizona the No. 1 inbound US state in 2018. 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 Texas No. 10, and New York No. 1 outbound state to No. 10 Louisiana. In total, there was a net outflow of almost 690,000 Americans from the top ten outbound states last year, and a net inflow of 522,600 Americans moving into the top ten inbound states above.

Q: Based on 2018 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, electricity and housing costs, 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, lower energy and housing costs, and more economic and job opportunities, from states that are relatively more economically stagnant with higher taxes and more regulations, higher energy and housing costs, 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 12 different measures of economic performance, labor market dynamism, business climate, electricity and housing costs, tax climate, and fiscal health for those ten states. And on each of those 12 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 with relatively high electricity and housing costs to lower-tax, more business-friendly, fiscally healthy and economically vibrant states with lower electricity and housing costs. Let’s review those 12 measures, one at a time:

1. Right-to-Work. Seven of the top ten inbound states are Right-to-Work (RTW) states, while nine of the top ten outbound states are forced-unionism states (all except Louisiana). 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 American businesses and workers are leaving low-growth forced-unionism states for greater job opportunities in higher-growth 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 9.1% compared to the 10.3% 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 in the ten highest outbound states.

3. Income Taxes. The average top individual income tax rate in the top ten inbound states is 4.7% compared to an average of 7.0% in the top outbound states. Likewise, the average top corporate tax rate in the top five inbound states is 5.0% compared to 8.0% 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 (Florida and Texas) 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 Maine, Vermont, and Montana. The average ranking for the top ten states was 21 (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 37 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, four of the top ten outbound states (New York, New Jersey, Connecticut, and California) were the four US states with the worst business tax climate. For the top ten inbound states, three of those states (Nevada, Montana and Florida) ranked among the top seven US states for business climate. The average ranking for the top ten inbound states is 19 (top half) compared to an average ranking of 37 (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, three of the top ten inbound states ranked in the top ten US states for the best fiscal health (Florida, Idaho, and Nevada), and Illinois, Connecticut, New Jersey, and Massachusetts (all in the top ten outbound states) ranked as the four worst US states for fiscal health. The average fiscal health ranking for the top ten inbound states was 19 (top half) compared to an average ranking of 41 for the top ten outbound states (bottom one-third).

7. Average Electricity Cost by state has been added this year as another measure that might contribute to businesses and households moving from states with relatively high energy costs to states with lower energy costs. According to data from the Energy Information Administration on the “Average Price of Electricity to Ultimate Customers,” the average price of electricity for all sectors (residential, commercial, industrial and transportation) is 10.71 cents per kilowatt-hour in the top ten inbound states. For the top ten outbound states the average cost of electricity is 15.99 cents per kilowatt-hour, which is nearly 50% higher than the top ten inbound states. Five of the top ten outbound states (California, Connecticut, Massachusetts, New York and New Jersey) are among the eight US states with the highest electricity costs. Because electricity costs affect both the cost of living for households and the cost of operation for businesses, it’s not surprising that the states with the highest electricity costs are losing population to states with lower energy costs. 

8. Median Home Price by state is another new measure added to the analysis this year that might help explain US migration patterns, and it does appear that Americans are leaving states with high housings costs to move to states with lower median home prices. The median home prices by state in the table above are from Zillow and show for the top ten inbound states, the average of the median home prices for those states is $231,250 compared to $331,150 for the top ten outbound states. The median home in the top ten outbound states is $100,000 greater on average than for the inbound states, which partly explains the outbound migration from states with high housing costs to states with low housing costs.

9. Economic Performance. The last three categories above show economic performance measures for each of the 20 states for: a) state real GDP growth rate in 2018, b) the average state jobless rate in 2018, and c) the annual employment growth in 2018. For the top ten inbound states, the average GDP growth rate last year was 2.7%, the average jobless rate was 3.7% (below the national average of 3.9%), and the average annual job growth was 2.2%. In contrast, the average figures for the ten outbound states were 1.7% for GDP growth, 4.3% for the jobless rate (above the 3.9% national average), and 0.7% for annual job growth. In other words, compared to the top outbound states, output growth was higher by a full percentage point in the top inbound states last year (2.7% vs. 1.7%), the average jobless rate was one-half percentage point lower (3.7% vs. 4.3%) and annual employment growth was more than three times higher (2.2% vs. 0.7%).

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 2018, the migration patterns of US households (and businesses) followed predictable patterns, reflecting differences among states in economic growth, tax burdens, business climate, energy and housing costs, 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 12 measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal health, electricity and housing costs, 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 higher energy and housing costs and fewer economic and job opportunities, to fiscally sound states that are more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens, lower energy and housing costs and more economic and job opportunities."