Feb 10 Study Shows Minnesota Taxpayers Moving out of State Compounds Budget Woes

“Tax birds” join “snow birds” in migrating to states with friendlier tax climates

Thousands of Minnesotans are moving to states with more competitive tax rates, costing state and local government hundreds of millions of lost tax revenue at a time of historic budget deficits, according to a report released today by the Freedom Foundation of Minnesota.

"This study is the first of its kind that looks at where Minnesotans are going and what happens to state and local revenue when they vote with their feet and move to a state with lower taxes and higher temperatures,” said Annette Meeks, CEO of the Freedom Foundation of Minnesota. “While we can't do much about the climate, the legislature must do something to make Minnesota a place where people believe they can find a better job, a higher quality of life and, importantly, a competitive tax rate to start or grow a business."

From 2002-2009 Minnesota lost an estimated 54,113 residents to other states, according to the new report, Minnesota’s Out-Migration Compounds State Budget Woes. These out-migrants also take their incomes with them. Between 1995 and 2007, the total amount of income leaving the state was at least $3,698,692,000 on which state and local governments would have collected an estimated $423,317,000 in additional taxes.
Compounding the figures over the thirteen years assessed in this study, Minnesota has lost $22,703,034,000 in net income and $2,548,131,000 in state and local tax revenue due to out-migration. Seventy percent ($827 million) of Minnesota’s anticipated $1.16 billion state budget shortfall in FY 2011 is due to lower individual income tax collections.

“Minnesota should work toward reducing the tax burden via reductions in the income tax which would encourage both people and income to stay in Minnesota or move into the state,” said J. Scott Moody, co-author of the report. “Without action by the legislature and the governor, out-migration will surely continue reducing the ability of both the private and public sector to ensure Minnesota’s economy remains strong and vibrant.”

Where are Minnesota’s out-migrants going and why? According to the Internal Revenue Service (IRS), between 1995 and 2007, the top five states are Florida (21,256), Arizona (19,605), Wisconsin (9,449), Colorado (6,894) and Texas (6,551)—states with far more competitive state tax structures. Income left Minnesota in every year—even in years when more people moved in than moved out—which suggests that people with higher-than average incomes have been leaving the state.

What can policymakers do about out-migration? Understanding why folks are leaving the state is the first step in reversing it. One way to do this is to compare various aspects of Minnesota with those of destination states. The data shows that people with higher-than-average incomes are leaving Minnesota for states where taxes are lower (especially income taxes), union membership is lower, population density is higher, cost of housing is lower, and the weather is warmer.

Cross-posted at Freedom Foundation of Minnesota