February 23, 2024

Do Americans really vote with their feet, leaving high-tax states in favor of low-tax states?

While most people don’t move often—and many never leave their home state—we can look at trends and patterns among those who do move across state lines.  

I’m not interested in the politics of it. I’m interested in the actual migration numbers compared to tax rates. Set aside your politics for the next five minutes, and let’s focus on the raw population numbers. 

After all, population change is the foundation of demand for real estate. By understanding where people are moving, we can understand where real estate markets will boom over the next few years. 

Measuring State Tax Burden

First and foremost, how do we compare taxes between states? 

Some states charge high income taxes but no sales taxes, and vice versa. Others go heavy on property taxes but light on sales and income taxes. 

Fortunately, WalletHub already does the heavy lifting of combining state taxes into one total state tax burden number. It includes the typical percentage of income that residents pay toward state income taxes, property taxes, and sales and excise taxes. If you’re not familiar with excise taxes, they’re additional taxes on items such as alcohol, tobacco, or gasoline.

Mapped: Tax burden by state

You can see how every state ranks on tax burden in the interactive map below:

We’re mostly interested in comparing the highest-taxed states to the lowest-taxed states, however, to see whether more residents are moving in or fleeing. Without further ado, here are the 10 highest-taxed states:

Rank State Total Tax Burden Property Tax Burden Income Tax Burden Sales & Excise Tax Burden
1 New York 12.47% 4.36% 4.72% 3.39%
2 Hawaii 12.31% 2.74% 2.86% 6.71%
3 Maine 11.14% 5.33% 2.52% 3.29%
4 Vermont 10.28% 4.98% 2.07% 3.23%
5 Connecticut 9.83% 4.24% 2.92% 2.67%
6 New Jersey 9.76% 4.88% 2.36% 2.52%
7 Maryland 9.44% 2.66% 4.21% 2.57%
8 Minnesota 9.41% 2.89% 3.11% 3.41%
9 Illinois 9.38% 3.66% 2.27% 3.45%
10 Iowa 9.15% 3.40% 2.41% 3.34%

Likewise, check out the 10 lowest-taxed states: 

Rank State Total Tax Burden Property Tax Burden Income Tax Burden Sales & Excise Tax Burden
41 Oklahoma 7.12% 1.76% 1.69% 3.67%
42 Missouri 7.11% 2.16% 1.99% 2.96%
43 Montana 6.93% 3.40% 2.32% 1.21%
44 South Dakota 6.69% 2.69% 0.00% 4.00%
45 Wyoming 6.42% 3.47% 0.00% 2.95%
46 Florida 6.33% 2.75% 0.00% 3.58%
48 Tennessee 6.22% 1.66% 0.02% 4.54%
47 New Hampshire 6.14% 4.94% 0.13% 1.07%
49 Delaware 6.12% 1.88% 3.15% 1.09%
50 Alaska 5.06% 3.59% 0.00% 1.47%

As an additional perk for real estate investors, two of those states—Wyoming and Delaware—top MarketWatch’s list of best states for forming an LLC.

Population Growth and Migration Patterns

It’s worth pausing for a moment to separate two concepts: population growth and interstate migration. 

While inbound or outbound migration does, of course, impact a state’s population, it’s not the only factor. One state could have a higher birth rate, or it could have more immigrants arrive from other countries. Population is easy to track through Census data, despite the delay in the government actually releasing it. 

When we talk about “migration,” we only refer to U.S. residents moving from one state to another. It’s harder to measure but potentially more relevant to whether taxes impact Americans’ decisions about where to live. 

Population changes

One look at the map and you can certainly see similarities between state taxation and population changes:

Low-tax states like Delaware, Florida, Tennessee, Wyoming, South Dakota, and New Hampshire all saw significant population gains. High-tax states like New York, New Jersey, Hawaii, Maryland, and Illinois all saw population declines. 

That said, it’s not a perfect correlation. High-tax Maine, Vermont, and Connecticut saw population growth. The state with the lowest tax burden, Alaska, saw no population change at all. 

Still, the 10 highest-taxed states saw their populations drop by an average of -0.25% over the last two years. The 10 lowest-taxed states saw their populations jump by an average of 1.83%.

Interstate migration

Where did Americans move last year?

Every year, United Van Lines releases a report answering that very question. Check out the map for where Americans moved in 2022:

The top 10 states with the most inbound migration are:

  1. Vermont 
  2. Oregon 
  3. Rhode Island 
  4. South Carolina 
  5. Delaware 
  6. North Carolina 
  7. Washington, D.C. 
  8. South Dakota 
  9. New Mexico 
  10. Alabama 

The 10 states with the most outbound migration are: 

  1. New Jersey 
  2. Illinois 
  3. New York 
  4. Michigan 
  5. Wyoming  
  6. Pennsylvania 
  7. Massachusetts 
  8. Nebraska 
  9. Louisiana 
  10. California 

The 10 states with the most inbound moves charge an average total state tax rate of 7.91% (that excludes Washington, D.C., as WalletHub provides no tax data for D.C.). The 10 states people are fleeing the fastest charge an average total tax burden of 8.76%. 

Again, there’s a link, but it’s not a perfect one. People keep moving to Vermont, despite the high taxes. And leaving Wyoming, despite the low taxes. 

That said, the data from United Van Lines is much more limited than the actual Census Bureau population data. United Van Lines says people are leaving Wyoming in droves, but the state has seen population growth nearly 33% faster than the national average over the last two years. Take the United Van Lines study with a proverbial grain of salt. 

Are Americans Leaving High-Tax States?

While I have no doubt that taxes factor into where people decide to move, it’s certainly not the only factor. Climate, amenities, job availability, cost of living, and proximity to family all play a role as well. 

In other words, don’t run out and buy up tundra in Alaska just because it charges the lowest tax burden in the U.S. 

But don’t dismiss state tax burden as a factor, either. Sure, people like the warm weather in Florida, but they also love that Florida charges no income taxes. 

The correlation between state tax rates and population change is stark. But you have to be careful about inferring causation from correlation. To prove that tax rates cause people to move, you’d need a massive survey that actually asks them. 

Impact on Real Estate Markets

The impact of taxes on population change is all well and good as an intellectual exercise, but what does this have to do with real estate?

As a real estate investor, I was curious whether state tax burden had any correlation with real estate appreciation over the last few years. The population change data suggests that it would, but there’s nothing like rolling up your sleeves and looking at the actual numbers. 

So, I compared the average three-year home price appreciation (using Zillow data) in the 10 highest-taxed states to the 10 lowest-taxed states. Sure enough, there was a difference:

Highest-Taxed States 3-Year Appreciation Lowest-Taxed States 3-Year Appreciation
New York 27.62% Oklahoma 43.32%
Hawaii 35.36% Missouri 40.54%
Maine 50.98% Montana 57.24%
Vermont 42.73% South Dakota 40.10%
Connecticut 34.20% Wyoming 29.73%
New Jersey 32.93% Florida 53.36%
Maryland 24.59% Tennessee 49.38%
Minnesota 27.30% New Hampshire 45.92%
Illinois 28.98% Delaware 35.44%
Iowa 31.18% Alaska 13.58%
Average 33.59% Average 40.86%

Between the end of February 2020 through the end of February 2023 (the latest data available), the 10 highest-taxed states saw an average home price change of 33.59%. The 10 lowest-tax states saw an average home price jump of 40.86%. 

I’m no public policy expert and have no intention of debating tax policies or politics. Looking at this data, I believe taxes are one of many factors that Americans consider when moving. These migration and population trends impact where I invest in real estate, and while taxes don’t tell the whole story, they certainly play a role in it. 

Ignore taxes, population changes, and migration patterns at your own peril as a real estate investor.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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