Americans Fleeing High-Tax States For States With Low Cost of Living

According to a recent report, many Americans fled high-tax states for states with low or no income taxes during the pandemic. The Tax Foundation analyzed population data from the U.S. Census Bureau and other commercial data sets.

The data shows that from April 2020 to July 2021, high-tax states like New York, California, and Illinois saw their populations decrease. In comparison, low-tax states like Florida, Texas, and Tennessee experienced population increases.

However, experts agree that state income taxes are only one reason for this shift. Lower cost of living and better economic opportunities also play a significant role.

High-tax cities see population losses

Over the past year, the District of Columbia saw its population decrease an estimated 2.8%. New York lost 1.8% of its residents, and high-tax states like Illinois and Hawaii experienced population losses as well. In 2021, New York and D.C. were the only two states that raised income taxes.

In comparison, states like Florida, Texas, and Tennessee are three of nine states that don’t charge any income taxes. Florida saw its population increase by 1.1%, and Texas’s population grew by 1.3%.

Of course, even states with low or no income taxes may be more expensive in other areas. For instance, Texas has higher than average property taxes. But even considering that fact, many people would still pay less overall in Texas than they would in the state they migrated from.

But income taxes are only part of the equation — states with minimal tax requirements often come with lower cost of living requirements overall. This is especially appealing to young people who can easily pick up and move for better economic opportunities.

Remote work fuels state-to-state migration

According to Jared Walczak, vice president of state projects at the Tax Foundation, these findings are the latest example of how many Americans are taking advantage of their remote work arrangements.

Traditionally, state-to-state migration was the result of retired seniors seeking out warmer clients, but that isn’t the case anymore. “This isn’t a migration of just retirees, but more and more a migration of people looking for better economic opportunities,” Walczak stated.

Prior to 2020, most people couldn’t just pick up and move because their jobs tied them to a specific location. If your office was located in New York, you were most likely required to be physically present in the office.

Then the pandemic changed all of that, and for many companies, what started as a temporary solution became a permanent change. Research shows that remote employees are 35-40% more productive than working in an office.

And most employees want to work from home — 36% would even choose remote work over a pay raise. One of the biggest benefits of working remotely is that it gives employees the option to live wherever they want.

That means people can move to take advantage of low taxes, a lower cost of living, and more economic opportunities. Going forward, states may have to rethink how they grow their population and maintain their competitive advantage.