Yes, Virginia, tax policies matter.
Minnesota, on net, lost $1 billion of income to other states between 2013 and 2014. Specifically, the state lost $944 million in adjusted gross income reported by tax filers who moved in and out of Minnesota. This is the largest net loss of income ever reported for Minnesota, and it represents a dramatic rise from just three years ago, when the state lost $490 million.
While the IRS has been tracking income movement since 1992, it released a new data series last year that for the first time provides annual information on who is moving from state to state, based on age and income. These new data refute a long-held assumption that Minnesota’s income loss is primarily due to retirement.
In fact, people in their prime working years represent the largest portion of the net loss of taxpayers and income. Working-age people between 35 and 54 account for nearly 40 percent of Minnesota’s net loss of tax filers for the 2013-14 period. People between 55 and 64 — most of whom are still in the workforce — account for another 23 percent.
Looking specifically at top earners — the people most directly impacted by Minnesota’s 2013 tax increase — shows that Minnesota is losing taxpayers earning over $200,000 at an alarming rate. The state’s rate of income loss from these people ranks 47th for 2013-14.
The data is lagging, so we only see the year right after the tax increase. I suspect that we will see that flight accelerate. People can’t often change their location immediately after a massive tax hike. There are other factors in their lives to consider. But give them a few years and the options open up. Every fixed cost becomes a variable cost with the passage of time.