Do Americans really vote for low tax states over high tax states?
While most people do not move often – and many never leave their home state – we can see trends and patterns among those who move across state borders.
I am not interested in its politics. I’m more interested in actual migration numbers than tax rates. Put aside our politics for the next five minutes, and let’s focus on the raw population numbers.
After all, population change is the basis of demand for real estate. By understanding where people are going, we can understand where real estate market There will be a boom in the next few years.
Measuring the State Tax Burden
First and foremost, how do we compare taxes between states?
Some states charge a high income tax but no sales tax, and vice versa. Others charge heavily on property taxes but reduce taxes on sales and income.
fortunately, WalletHub There is already a heavy burden of combining state taxes into a single total state tax burden number. This includes the specific percentage of income that residents pay for state income taxes, property taxes, and sales and excise taxes. If you’re not familiar with excise taxes, they are additional taxes on goods such as alcohol, tobacco, or gasoline.
Mapped: tax burden by the state
You can see how each state ranks in terms of tax burden in the interactive map below:
We’re mostly interested in comparing the states with the highest taxes to the states with the lowest, though, to see whether more residents are moving or migrating here. Without further delay, here are the 10 highest tax states:
| Post | State | net tax burden | property tax burden | income tax burden | burden of sales and excise tax |
|---|---|---|---|---|---|
| 1 | New York | 12.47% | 4.36% | 4.72% | 3.39% |
| 2 | airy | 12.31% | 2.74% | 2.86% | 6.71% |
| 3 | I | 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% |
Similarly, check out the 10 states with the lowest taxes:
| Post | State | net tax burden | property tax burden | income tax burden | burden of sales and excise tax |
|---|---|---|---|---|---|
| 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 added advantage for real estate investors, two of those states—Wyoming and Delaware—top Marketwatch’s list. Best States to Form an LLC,
Population Growth and Migration Patterns
It is worth pausing for a moment to differentiate the two concepts: population growth and interstate migration.
Of course, inbound or outbound migration affects the population of a state, but it is not the only factor. A state may have a higher birth rate, or may have more immigrants from other countries. Easy to find population census dataDespite the delay in actually releasing it by the government.
When we talk about “emigration” we only refer to US residents move from state to state, This is harder to measure, but potentially more relevant than whether taxes influence Americans’ decision to stay where they live.
population change
You can certainly see the similarities between state taxation and population change when you take a look at the map:
Low-tax states such as Delaware, Florida, Tennessee, Wyoming, South Dakota, and New Hampshire saw significant population growth. States with high taxes such as New York, New Jersey, Hawaii, Maryland, and Illinois saw population declines.
That said, this is not a perfect correlation. Higher taxed Maine, Vermont, and Connecticut saw population growth. Alaska, the state with the lowest tax burden, saw no change in population.
Still, the 10 highest-taxing states saw their population decline by an average of -0.25% over the past two years. The 10 states with the lowest taxes saw an average population growth of 1.83%.
interstate travel
Where did Americans go last year?
every year, United Van Lines released a report I am answering the same question. Check out the map for where Americans are headed in 2022:
The top 10 states with the highest inward migration are:
- Vermont
- Oregon
- Rhode Island
- South Carolina
- Delaware
- North Carolina
- Washington DC
- South Dakota
- new Mexico
- Alabama
The 10 states with the highest out-migration are:
- new Jersey
- Illinois
- New York
- Michigan
- Wyoming
- Pennsylvania
- Massachusetts
- nebraska
- Louisiana
- California
The 10 states with the most inbound moves charge an average total state tax rate of 7.91% (this does not include Washington, DC, as WalletHub does not provide any tax data for DC). The 10 states from which people are migrating the fastest have an average total tax burden of 8.76%.
Again, there’s a link, but it’s not quite right. Despite the high taxes, people keep flocking to Vermont. And Wyoming is leaving, despite low taxes.
That said, data from United Van Lines is much more limited than actual Census Bureau population data. United Van Lines says people are leaving Wyoming in large numbers, but the state has seen population growth about 33% faster than the national average over the past two years. Take the United Van Lines study with a grain of proverbial salt.
Are Americans Leaving High Tax States?
While I have no doubt that the tax factor is involved in where people decide to relocate, it certainly isn’t the only factor. Climate, amenities, job availability, cost of living and proximity to family all play a role.
In other words, don’t rush out and buy Tundra in Alaska because it carries the lowest tax burden in America.
But don’t dismiss the state tax burden as a factor, either. Sure, people love Florida’s warm weather, but they also love that Florida charges no income tax.
The relationship between state tax rates and population change is clear. But you have to be careful in inferring causation from correlation. To prove that tax rates cause people to move, you would need a large scale survey that actually asked them.
Impact on Real Estate Markets
The effect of taxes on population change is fine as an intellectual exercise, but what does this have to do with real estate?
As a real estate investor, I was curious whether the state tax burden had anything to do with the appreciation of real estate over the years. Population change data suggests it will, 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) From the 10 highest tax states to the 10 lowest tax states. Sure enough, there was a difference:
| highest tax states | 3-year appreciation | lowest tax states | 3-year appreciation |
|---|---|---|---|
| New York | 27.62% | oklahoma | 43.32% |
| airy | 35.36% | Missouri | 40.54% |
| I | 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 and the end of February 2023 (latest data available), the 10 highest tax states saw a change of 33.59% in the median home price. The 10 lowest tax states saw an increase of 40.86% in the average home price.
I am not a public policy expert and have no intention of debating tax policies or politics. Given this data, I believe that tax is one of many factors that Americans consider when moving. These migration and population trends affect where I invest in real estate, and although taxes don’t tell the whole story, they certainly play a part.
As a real estate investor, ignore taxes, population changes and migration patterns at your own peril.
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Note by BigPockets: These are the views expressed by the author and do not necessarily represent the views of BiggerPockets.
