Blue state exodus: It isn’t just Minnesota

The Center’s Peter Nelson ignited a statewide debate over Minnesota’s liberal tax, regulate and spend policies with his blockbuster report Minnesotans on the Move to Lower Tax States 2016. Peter showed, using the Internal Revenue Service’s database, that Minnesota is a net loser of population and household income to other states. In 2014, Minnesota lost a whopping $948 million in net household income.

Moreover, the loss was overwhelmingly to lower-tax states. The problem is two-fold. First, as has been widely reported, thousands of Minnesotans are moving to other states. But second, equally important, Americans from other states who are deciding where to live are not choosing Minnesota. It seems blindingly obvious that a 10% top personal income tax puts Minnesota at a severe disadvantage, especially compared with states that have no income tax at all.

Joel Kotkin and Wendell Cox have replicated Peter’s research on a national scale, although not at the same level of detail, using the same IRS data. Their finding? Red states are winning, and blue states are losing:

To measure the states that are most attractive to Americans on the move, we developed an “attraction” ratio that measures the number of domestic in-migrants per 100 out-migrants. A state that has a rating of 100 would be perfectly balanced between those leaving and coming.

Overall, the biggest winner — both in absolute numbers and in our ranking — is Texas. In 2014 the Lone Star State posted a remarkable 156 attraction ratio, gaining 229,000 more migrants than it lost, roughly twice as many as went to No. 3 Florida, which clocked an impressive 126.7 attraction ratio.

Most of the top gainers of domestic migrants are low-tax, low-regulation states, including No. 2 South Carolina, with an attraction ratio of 127.3, as well as No. 5 North Dakota, and No. 7 Nevada.

The losers are high-tax, high-regulation states:

High costs go a long way to explain which states are losing the most migrants. At the top, or rather, the bottom of the list is New York State, which had an abysmal 65.4 attraction ratio in 2014 and lost by far the most net migrants, an astounding 126,000 people. Close behind was Illinois, a high tax, high regulation, and low growth disaster area. In 2014 the Land of Lincoln had an abysmal 67.2 attraction ratio, losing a net 82,000 domestic migrants.
And then there is the big enchilada, California. For generations, the Golden State developed a reputation as the ultimate destination of choice for millions of Americans. No longer. Since 2000 the state has lost 1.75 million net domestic migrants, according to Census Bureau estimates. And even amid an economic recovery, the pattern of outmigration continued in 2014, with a loss of 57,900 people and an attraction ratio of 88.5, placing the Golden State 13th from the bottom, well behind longtime people exporters Ohio, Indiana, Kentucky and Louisiana.

When South Carolina is a far more popular destination than California, you know the old order has been overturned.

Worse yet is that the exodus from blue states to red is focused largely on the most productive sectors of the population. This is what Peter Nelson found with regard to Minnesota, and the pattern is a national one:

Overall, many of the most affluent states are the ones hemorrhaging high-income earners the most rapidly. As in overall migration, New York sets the standard, with the highest outmigration of high income earners (defined as annual income over $200,000) relative to in-migrants (attraction ratio: 53). New York is followed closely by Illinois, the District of Columbia and New Jersey, which are all losing the over-$200,000-a-year crowd at a faster pace than California.

The big winners in terms of affluent migration tend to be historically poorer states, mainly in the Sun Belt and the Intermountain West. Florida has an attraction ratio for people earning over $200,000 a year of 223, the highest in the nation, followed by South Carolina, Montana, Idaho and North Carolina.

Minnesota’s experience is not unique. Like other blue states, it is paying a steep price for adopting liberal policies. People are leaving the state–especially the ones that we would most like to retain. And Americans from other states are crossing Minnesota off their list when they see that we have a 10% top income tax rate and onerous regulations that crush small businesses. It remains to be seen whether Minnesota will be able to respond rationally to these facts in time to turn around its mediocre economy.