Why so SALTy?

Amy Hageman Published in Journal of the American Taxation Association

 

We’ve probably all heard Benjamin Franklin’s quote about the only things certain in life are death and taxes. We learn at an early age that the $9.99 price tag probably doesn’t mean you pay $9.99 at the register. The fun continues into adulthood when income taxes, vehicle taxes, and property taxes, among others, enter the equation. These taxes can vary from state to state and county to county, and can have a direct impact on your livelihood, so much so that you might wonder if it would be better if you lived somewhere else. Accounting Professor Amy Hageman and colleagues from the University of Central Florida examined the dichotomy that exists between state and local governments’ need for revenue generated from state and local taxes (SALTs), and how (and if) those same taxes are associated with taxpayer migration decisions.

The team hand-collected data from all 50 states from 2008-2015, measuring net migration (difference between in-migration and out-migration), tax burden, individual income tax collections, death/gift tax collections, general sales tax collections, select sales tax collections, license tax collections, and property tax collections, all scaled by state population. They also controlled for corporate income tax collections, unemployment rate, Gallup Well-Being Index ranking, state GDP, median home value, average temperature, and state and year fixed effects.

As reported in their article, SALTy Citizens: Which State and Local Taxes Contribute to State-to-State Migration?, they consistently found that elements of sales, income, and property taxes are related to taxpayer migration patterns; of these, property taxes have the strongest impact on migration. Specifically, property taxes are negatively and significantly associated with taxpayer migration patterns.

The paper was published in 2021 in the Journal of the American Taxation Association, and provides information that is valuable to both taxpayers and policymakers. “Our study helps to quantify specific economic impacts that are associated with state and local tax policy – particularly the negative relationship between property taxes and migration patterns,” said Hageman. “As state policymakers battle to keep residents in their state and try to attract residents from other states, knowledge of this impact is vitally important to understanding the effect that tax policies to raise revenues may have on migration patterns.”

Hageman notes that, while the economic magnitude of the effect of taxes on individual migration patterns is smaller than other factors (such as weather, infrastructure, etc.), taxes can still make a difference on the margin. “Understanding the effect of taxes on individual migration behavior can therefore help policymakers weigh the trade-off between the additional revenue raised by increased state taxes, coupled with the negative consequences of higher taxes, including the risk of increased out-migration patterns in higher-taxed states.” Understanding the ripple effects caused by state and local taxes is therefore a SALTy issue for taxpayers and policymakers alike.

_{Editor's note: Please contact Amy if you would like to discuss the topic further or to read the entire article that was published in the Journal of the American Taxation Association.}