The Internal Revenue Service maintains a database that allows us to track the movements of individuals between states. Unlike the Census Bureau’s numbers, the IRS database supplies both age and income information about interstate migrants. This gives us a picture of which people we are attracting, and which are we driving away.It is hard not to see the problem for a state if it chooses policies which drive out prime age workers and the middle class and above and also discourages those groups from emigrating in.
As the Center of the American Experiment noted in our previous report “Minnesotans on the Move to Lower Tax States,” the IRS database showed that our state had been losing residents to other states, on net, since 2001-02 — matching the Census Bureau numbers. It also showed that, as of 2016, the outflow of residents went overwhelmingly to lower-tax states.
The IRS database has just been updated with the addition of two more years of statistics on the movement of taxpayers across state lines, covering the years 2016-17 and 2017-18. Unfortunately, these new data show that the trend that existed as of 2016 continues: Minnesota gains low-income residents from other states, but loses middle- and upper-income residents, generally to lower-tax states.
In fact, the IRS data show that Minnesota, on net, lost $900 million in income to other states between 2016 and 2018. Specifically, in 2016-17, the state lost $223 million in adjusted gross income reported by tax filers who moved in and out of Minnesota — the least, adjusted for inflation, since 1995-96 — before seeing the net loss increase again to $673 million in 2017-18.
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In Minnesota, we often hear talk about whether our high tax rates drive away “the rich.” Unfortunately, that is only one of our problems. The IRS database shows that Minnesota was a net loser of residents in every income category from $50,000 up in 2017-18. Out-migration is very much a middle-class issue. By contrast, the state attracted a net inflow of domestic migrants with incomes of $25,000 or less.
Minnesotans sometimes assume that the residents we lose are mostly the elderly, moving to warm-weather retirement destinations. Unfortunately, that’s not the whole story, either. Between 2016 and 2018, Minnesota, on net, lost residents to other states in every age category from 45 upward, thus including many people in their prime working years.
Phelan's conclusion is hard to dispute:
If Minnesota wants to prosper in the 21st century, we must attract, rather than drive away, highly productive citizens. Whether we like it or not, we are competing with other states for jobs and taxpaying residents. Our climate doesn’t give us a leg up in that competition, so we can’t afford to compound our problem with poor tax policy.UPDATE: John Hinderaker points out the inclination to rebut evidence and reason by ad hominem charges of racism in THE LIBERALS’ RACISM DODGE: AN EXTREME CASE. It is striking. A retired NPR journalist make his argument against the economic analysis by claiming racism when race and ethnicity were never mentioned in the original piece. The NPR journalist advances his ideological cause by invoking an argument which was not made.
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