Travis H. Brown is the author of How Money Walks: How $2 Trillion Moved Between the States, and Why It Matters.
With April 15 comes the familiar litany of mundane exercises. Fill out the forms. Call the tax preparer, or pull up the software. Figure out the best way to reduce your tax burden. Pop everything in the mail. For many Americans, mid-April is the only time to think about taxes. However, taxes should play an integral role in life's biggest decisions, from where to start a business to where to retire. Taxes are a concern of local, national and global proportions. Where we live determines how much income we are able to keep, save and invest. From personal bank accounts to massive corporate holdings, capital migrates to where it is treated best.
In the United States, no- and low-income tax states are experiencing booms, while high-income tax states are threatened with busts. This is no mere hypothesis. Fifteen years' worth of data from the Internal Revenue Service shows that net adjusted gross incomes (net AGI) move from states that levy high income taxes to those with low or no income tax. Our analysis of more than 134 million individual taxpayer records revealed that, between 1995 and 2010, more than $2 trillion dollars moved between the states. Using this unimpeachable data, we can see – down to the county level – which areas are gaining wealth and residents, and which are losing them. [See a collection of political cartoons on the economy.]
Why does this matter? There are myriad reasons. Successful people and businesses flee from states with harsh tax environments. They flock to states with benign, progrowth tax structures that allow them to save and invest. This is why a state like California, with its top income tax rate of 13.3 percent, saw a loss of more than $31.7 billion over 15 years. Texas, which taxes its residents at the very agreeable rate of zero, gained more than $22 billion over that same time period. (Recently, Texas Gov. Rick Perry took advantage of this reality by running ad campaigns that woo California businesses to move to Texas.)
Of course, taxes are not the only factor considered before a relocation – but they can (and should) play a major role in the decision. High-profile, real-life case studies have amplified the conversation, such as when golf legend Phil Mickelson said high taxes made him want to leave California. But the issue of economic mobility is certainly not restricted to the wealthy; moving from a high-tax state to a low-tax one makes a significant impact (equivalent to an immediate and permanent pay raise) for middle-class families, too. [Read the U.S. News Debate: Is Obama's Corporate Tax Plan A Good Idea?]
All across the nation, leaders are taking notice of tax migration. No one wants to be the next California ($22 billion lost), New York ($58.6 billion lost) or Illinois ($26.1 billion lost), with wealth and talent streaming out of the state. Governors like Louisiana's Bobby Jindal have proposed all-out repeals of the personal income tax, in order to keep more money in residents' pockets, to boost consumer spending, and to compete with business-friendly neighbors. This year alone, the governors of Indiana, Wisconsin, Ohio, North Carolina, Idaho, New Mexico, Kansas and Maine are all backing serious tax reform. In other states, such as my home of Missouri, state legislatures are proposing tax reform bills and carrying the torch for real change.
Clearly, a number of people – from celebrities to legislators to working families – are grasping the difference that a low-tax environment can make, both in their lives and for the future of their communities. This April 15, it's time for this message to reach even more Americans. There is no such thing as a mere "tax day," or even a "tax season." Our lives and livelihoods are impacted by taxes every day. The decisions we make, based on this knowledge, can change our economy for the better.