Daily Catch

Progressives try to debunk tax flight by ignoring the data

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The Maine Center for Economic Policy (MECEP) recently released an analysis of interstate migration, attacking the idea that Maine’s exceptionally high level of taxation drives away high-income families — a concept, popularly known as “tax flight,” which The Maine Wire and the Maine Heritage Policy Center have defended.

MECEP’s report begins by presenting data that shows that high-income Americans are less likely to move than lower-income groups. MECEP reasons that this is because “wealthy people have deep roots in their communities through professional, family and friend circles” and that they “can afford to stay put in order to maintain those relationships and the quality of life they bring.”

Fair enough. No one is arguing that high-income households furiously rush around the country motivated only by the prospect of a smaller tax bill. There are, of course, many factors that influence where people choose to live, and taxes typically aren’t their primary motivation.

But the marginal impact of high taxes — particularly income taxes — on the migratory patterns of the wealthy has been demonstrated again and again.

MECEP points out, correctly, that Maine typically gains more residents from New Hampshire than vice versa. The difference is small — just 3,341 people from 2000 to 2016 — but the fact that Maine is receiving an influx of New Hampshirites certainly seems to undercut the argument that people prefer to live in low-tax states. In fact, the difference in tax levels between Maine and New Hampshire is the largest of any two states that share a border; Maine ranks 3rd in the nation, New Hampshire 46th. Surely, the fact that Maine gains population from New Hampshire fatally undermines the “tax flight” theory.

Not quite. MECEP fails to consider a crucial distinction between low-income households and high-income households, and their respective motivations for moving between states. While high-income households have strong motivations to favor states with lower levels of taxation, low-income households have every incentive to seek high-tax states with large social welfare programs, since they are likely to collect far more in government benefits than they pay in taxes.

There can be little dispute that Maine has a more generous welfare system than New Hampshire. As a result, while high-income households would tend to favor New Hampshire over Maine, low-income families face opposite incentives.

Now, back to the 3,341 more people who moved from New Hampshire to Maine than vice versa between 2000 and 2016. Does this figure simply indicate that more low-income New Hampshirites moved to Maine than high-income Mainers who moved to New Hampshire? If so, then it doesn’t discredit the “tax flight” view at all, and actually reinforces it.

What we need is a way to calculate the incomes of those who moved to Maine from New Hampshire and vice versa. The data is sparse, but IRS migration data does give us a clue. From 2015 to 2016 (the last year for which we have data), the average (mean) income of a household moving from Maine to New Hampshire was almost $69,000. For households moving from New Hampshire to Maine, it was $55,000.

If you zoom in to the county level, the disparity only grows larger. For example, the average income of families moving from Rockingham County, New Hampshire (which encompasses the state’s prosperous seacoast region) to Maine was $70,000, versus $95,000 for families moving from Maine to Rockingham County. So the theory holds up: relatively lower-income households are moving from New Hampshire to Maine and relatively wealthier households are going the other way.

But is this just a fluke? It doesn’t look like it. Take Florida, for instance, another low-tax state. From 2015 to 2016, the average income of a Maine family moving to Florida was $75,000. For those moving from Florida to Maine, the average was $45,000.

Now let’s go in the opposite direction. Let’s compare Maine to California, which has even higher taxes on the wealthy and a more generous safety net for lower-income families. Sure enough, the trend holds. The average income of Mainers moving to California was $59,000, while the average among Californians coming to Maine was $77,000. I think we’re onto something.

Previous years show a similar, statistically robust, pattern.

By ignoring the income disparities between migrant households, MECEP’s report largely misses the point. IRS data is the best source we have for detailed state-to-state migration statistics, and its verdict is unambiguous: the wealthy are leaving Maine.

About Liam Sigaud

Liam Sigaud is a former policy analyst at The Maine Heritage Policy Center. A native of Rockland, Maine, he holds a B.A. in Biology from the University of Maine at Augusta and has studied policy analysis and economics at the Muskie School of Public Service at the University of Southern Maine. He can be reached by email at liam.sigaud@maine.edu.

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