Taxes Rarely Impact Where We Move, But They Can Improve Where We Already Live

Virginia can be a place with great public schools for every student, where working people have the resources they need to build a good life, and where everyone can thrive, no exceptions. And when we all pitch in, we can raise the shared resources we need to achieve these goals. Yet, in the name of “competition,” to make Virginia the “best” state, some politicians spread faulty narratives about how taxes impact where people decide to live to justify harmful tax proposals that further favor the wealthy. These proposals usually come at significant costs to all of us — undermining the ability to make Virginia one of the best states to live, work, and raise a family — while the building blocks of thriving communities, like our public schools, remain underfunded.

While the number of people moving to and from Virginia and other states varies yearly, there is little evidence that state income taxes heavily influence either decision. Place, what it means to us, and why we live where we live are inherently complicated and difficult to untangle. As we look to future legislative sessions, state lawmakers should not make policy choices based solely on circumstantial migration data. Instead, they should ground their choices in credible research and invest in making Virginia a great place to live for people who call it home now and will choose to call it home in the future.

The discussion around people coming to or leaving Virginia often reignites around tax policy debates, especially in recent years in Virginia. Yet the argument that people “vote with their feet” and seek out places where they pay less in income tax, referred to as “tax migration,” oversimplifies complex decisions families have to make. In examining trends on the number of people who move to and from Virginia (state-to-state migration), there is no strong evidence that people are in droves “voting with their feet” and leaving at high rates to lower tax states. Similarly, there is little evidence that people are relocating to Virginia as a reprieve from higher tax environments. 

Other bodies of research show that even millionaires are not strongly influenced by tax policy when it comes to where they live. While income millionaires are more likely to consider state tax rates while making a move, they are far less likely to move than the general population. Income millionaires tend to be more embedded in place with marriages, school-aged children, and businesses, and are often at the peak of their careers in jobs that are difficult to relocate.

The research that is available on why people move suggests that people leave their states for employment opportunities, to be closer to family, to find more affordable housing, and for better lifestyle fits. Taxes rarely make the top of the list.

In 2022 and 2023, Governor Youngkin proposed cuts to the state’s individual income tax amidst a discussion on migration from Virginia. While cost of living remains a concern, across-the-board income tax cuts can be ineffective, giving very little to those already struggling to make ends meet. The 2022 and 2023 income tax proposals would have primarily benefited those with the highest incomes, even though the state’s tax code already provides wealthier, primarily white, individuals with built-in advantages. While 56% of all people who file tax returns in the state are white, they make up 71% of households in the top 5% of incomes. Comparatively, 21% of tax filers in Virginia are Black, yet only make up 9% of the top 5% of incomes. Latino filers are also underrepresented at high incomes, making up 13% of Virginia filers, but just 5% of filers in the top 5% of incomes.

Speculation around tax migration — who might leave, who we might attract, why we look different from neighboring states — and arguments favoring flat income tax rate cuts serve the already wealthy and well-connected. At the same time, these tax proposals take for granted those who already choose to call Virginia home and would ultimately harm our communities. 

These faulty narratives also distract from one of the fundamental issues in Virginia’s tax code: the wealthiest in Virginia pay the least in taxes as a share of income. This contributes to the state having an upside-down tax code, which already limits our ability to invest in our communities. Income tax cuts would further drain state revenues, making it harder to invest in strong public education, safe and affordable housing, accessible health care, and safe transportation, which arguably make a state a more desirable place to live. These choices have particular impacts on low-income communities and communities of color who face additional barriers to economic and educational opportunity and whose access to these tools is critical to well-being. Ultimately, the conversation about taxes should focus on flipping our upside-down tax code — making sure the wealthy pay their fair share — so that we can invest in our communities.

Less revenue also means less of a shield from economic downturn in the future. During the Great Recession, as Virginia looked to make up for revenue deficits through spending cuts, state cuts to education hit students in high-poverty schools and students of color the hardest. For many years after, per-pupil education spending remained below where it was in 2009. Beginning in fiscal year (FY) 2023, buoyed in part by rejecting proposed tax cuts in favor of increased education spending, per-pupil education spending surpassed 2009 levels.

Legislators have rejected tax cuts that favor the wealthy in recent years, choosing instead to target economic support to middle- and lower-income families and fund key investments. Yet despite being unfounded, claims of “tax migration” are sure to accompany future proposals. When we reject these dangerous narratives, we are better positioned to make further transformative investments in our communities.

Below, we examine some recent migration data from the American Community Survey (ACS) collected in 2023 on where people move to Virginia from and where people leave Virginia for. Though the data does not support any conclusions on how taxes influence people’s decisions to move and where to move, we see that people move to Virginia from states with both higher and lower top income tax rates, as well as move from Virginia to states with higher and lower top income tax rates. For this analysis, we use top income tax rates by state from 2023 and consider variation in local income tax rates (see endnote for further discussion).

While in some years more people leave than come to Virginia, in other years more people move to Virginia than leave. In 2023, for every 10 people who moved out of Virginia, about 11 moved into the state, according to ACS data released by the U.S. Census Bureau on state-to-state migration flows. This marked the first year that more people moved into Virginia than out since 2018.

Compared to the state population, the difference between the number of people who come and go within the U.S., known as net domestic migration, has minimal impact on the overall number of people living here. In 2023, net domestic migration was estimated to be just 0.27% of the state’s population over the age of one. In reality, these numbers don’t say much other than that people are (or are not) moving, and that they move at relatively low rates. The net domestic migration data also doesn’t count people who move to Virginia from other countries, many of whom are much-needed working-age adults filling job openings that would otherwise remain unfilled.

Without additional data and much more complex analyses, it is nearly impossible to point to why people are moving to, moving from, or staying in Virginia, and what drives their location choice. As the old adage goes from statistics class, “correlation does not imply causation.” Just because North Carolina has higher net migration than Virginia and has a lower top income tax rate does not mean this difference in movement was due to income taxes. Many other factors could be influencing this difference, including housing costs, proximity, differences in population size and characteristics, growth in specific industries, workforce development, just to name a few. Without disentangling these and many more factors, migration data does not tell us much more than if people are moving, who is moving, and where they are moving to.

Some politicians rely on an incomplete or faulty interpretation of migration data to push for harmful income tax cuts, saying that people “vote with their feet” and seek out states with lower top income tax rates or “low tax states.” Conversely, this logic would also mean that people move away from “high tax” states with higher top income tax rates. This argument does not include other types of state and local taxes, like sales and property taxes, or other factors that impact affordability. Even as a simplified argument, evidence that people vote with their feet regarding top income tax rates is slim. Looking at recent ACS migration data collected in 2023 on moves in the past year, people came to Virginia from both higher and lower tax states and left Virginia for both higher and lower tax states. Even if a stronger trend was identifiable, many factors may influence moves.

People leave Virginia for both higher and lower income tax states. In 2023, people who left Virginia in the past year moved to Florida the most, followed by neighboring states of North Carolina and Maryland. Other top destinations were the large and populous states of California, Texas, and New York, followed by nearby South Carolina and Pennsylvania. Colorado and Tennessee also made the top-10 list. Of these, five states have lower top income tax rates than Virginia, and four states have higher top state rates. While at the state level, Pennsylvania has a lower top rate than Virginia, due to variation in local income tax, some residents may pay a higher top marginal rate overall.

Even for states that people move to at higher rates from Virginia, in many cases, almost all movers, if not more, are replaced by people moving from those states to Virginia. For every 10 people who leave Virginia for Florida and North Carolina, nine move from those states to Virginia.

People move to Virginia from higher and lower income tax states. In the same year, people who moved to Virginia were most likely to come from a mix of higher and lower income tax states. People moving to Virginia were estimated to come from Maryland, Florida, and North Carolina most often.

Virginia is a top destination for people from states with both higher and lower income taxes. From data collected in 2023, Virginia was estimated to be a top-10 state for people to move to from 20 other states, seven with the same or lower top income tax rate. Virginia was also a top place of origin for 20 states, seven with lower income taxes.

People leave Virginia for lower tax states… and come to Virginia from lower tax states.  People from Virginia more often move to states with the same or lower top income tax rates, comprising 50% of estimated moves out of the state. An additional 12% move to states with lower top income tax rates, but may face higher top marginal rates overall due to variations in local income taxes. However, a sizable proportion of people moving into Virginia are also more likely to come from states with the same or lower top rates, 44% of all estimated moves into the state. Another 12% come from states with lower top state rates, but have variation in local income tax rates.

As demonstrated in various ways above, people move to Virginia from both lower- and higher-tax states and move to other states with both lower and higher tax rates. As measured in 2023 by the ACS, for every 10 people who left Virginia for a state with the same or lower top tax rate, nearly 10 came to Virginia. People moved to higher tax states less often, but still in sizable numbers. For every 10 people who left Virginia for a higher tax state, about 13 were estimated to move in from a higher tax state.

Overall, the ACS data identifies several channels of movement to and from Virginia. In many cases, people moving to and from Virginia are moving across neighboring borders or to and from populous states. Virginia is a top destination to move to, with people coming from both higher and lower top income tax states, as well as a common state of origin, with people moving to states with a mix of higher and lower top income tax rates. Given that more people come to Virginia from lower-tax states, as well as leave Virginia for lower-tax states, the argument that people choose location based on top income tax rates is further muddied.

The Internal Revenue Service (IRS) also publishes state-to-state migration data, along with information on the age, income groups, and aggregate adjusted gross income (AGI) of people who are moving. Unlike the ACS data, which are estimates drawn from an annual survey, IRS data only includes people who file an income tax return.

Age. Households that moved between 2021 and 2022 (most recent data available) tend to be younger than those who stayed in the state. While 28.8% of all returns in the state are from households where the primary filer is under 35, over half the returns of people who moved into or out of Virginia are from young households.

Income group. In general, households with lower incomes in Virginia were more geographically mobile. Households making less than $75,000 are overrepresented in those moving into Virginia (64.3%) and moving within the state (71.1%), compared to all returns filed (58.7%). The share of households making less than $75,000 who moved out of Virginia in 2022 was roughly similar to their share of households who filed taxes. Households with greater income, those making over $100,000, were less likely to move. Despite making up 30.7% of returns that year, higher-income households made up 28.9% of those moving out of the state, 24.9% of those moving into the state, and 19.2% of those moving within the state.

Adjusted Gross Income. The IRS data also includes the aggregate adjusted gross income (AGI) of people who move. While the data shows AGI of people leaving Virginia, that does not mean their income or tax contributions automatically go with them, as other people may step into the jobs or businesses that movers leave behind. Instead, we can look at growth in AGI over time. In general, inflation-adjusted AGI (in 2022 dollars) went up from 2021 to 2022, growing 7.4%. Those who moved tended to see greater overall income growth, with 12.2% growth for people who left Virginia, 9.5% growth for those moving into the state, and 12.0% for those moving within Virginia.

While these data help us better understand who is moving to, from, and within Virginia, they do not explain why people are moving.

Of the 1.06 million estimated moves by Virginia residents last year, nearly 3 out of every 4 were estimated to move within the state, according to ACS data. The UVA Weldon Cooper Center, which provides official population estimates for the state, has generated estimates and analysis looking at population growth in the state, as well as its counties and cities. Overall, they find that in the past three years, as the country experienced and rebounded from the impacts of the COVID-19 pandemic, Virginia, like the U.S. at large, has experienced slow population growth at just under 1% from 2020 to 2023. These findings are in line with recent data from the Census Bureau’s Population Estimates Program (PEP), which uses administrative data to estimate population changes in U.S. states, localities, as well as metropolitan and micropolitan statistical areas.

Delving into the regional data, the Weldon Cooper Center observes that, generally, more people are moving from larger metro areas to smaller ones and are headed to the suburbs and exurbs, communities just outside of the suburbs that maintain some connection to the metro area. For example, Northern Virginia sees net out-migration, while rural Virginia and the Richmond area have seen net in-migration. Regional differences within Virginia show greater complexity in migration that can not be solely explained by income tax differences, as income tax rates do not change by locality in Virginia.

Other analysis finds that taxes play a negligible role in influencing decisions on where to move. A 2023 report from the Center on Budget and Policy Priorities (CBPP), examines migration data from multiple sources as well as academic research and finds that it fails to support claims that high-income people, in particular, are fleeing states with relatively high and progressive income taxes. They find that when states cut income taxes for high incomes, in the case of Kansas, New Mexico, and Ohio, there is no resulting drop in out-migration or increase in net in-migration. The cuts in Kansas devastated state revenues and had to be partially reversed to mitigate the damage. In the case of North Carolina, a trend of increased net in-migration predates a cut to its top income tax rate.

States often compete with each other for employers, sports teams, and people, often trying to become the “best” state for businesses, for families, for workers. The list goes on. All the while, there is longstanding debate about the role taxes play in people’s decision to move. Why we move is complicated, and it is hard to disentangle the variables that influence us to do so. And there is little evidence that the relationship between income taxes and location is strong enough to justify making decisions on income tax policy. Furthermore, some politicians use these narratives alongside policy proposals that would double down on the state’s upside-down tax code and drain our state resources, undercutting the ability to put Virginia at the top.

Competition to lower taxes to best other states could lead to a race to the bottom. Continuous cuts to revenues to “compete” with other states would exacerbate stress on already underfunded services that communities in Virginia rely on that are central to quality of life, like quality public schools, safe roads, and accessible health care. In addition, this could mean less revenue to invest in making Virginia a good place to live for the people already living here as well as those who will live here in the future. If other states follow suit, their residents will feel the harsh impacts of continuous cuts as well. In this situation, no one “wins.” Moving forward, lawmakers should ground their choices in what we know works to support safe and vibrant communities and should invest in making Virginia a place where everybody can thrive.

For this analysis, we use top income tax rates by state from 2023. Several states that had top income tax rates in 2023 that were the same (Georgia) or higher (Iowa and Nebraska) than Virginia now have lower rates. This analysis uses 2023 data because the migration data — and therefore any connection to tax rates — is from 2023. When possible, local rates are also taken into consideration. Alabama, Indiana, Kentucky, Michigan, Missouri, Ohio, and Pennsylvania have lower state marginal rates than Virginia, but some residents face higher marginal rates overall when including local income tax. Maryland has the same top marginal rate as Virginia as of 2023, but all residents pay higher marginal rates when including local income tax. For states with local income taxes that are a percent of tax liability, a flat dollar amount, or limited to specific types of taxable income, local income taxes are not considered when comparing top marginal rates to Virginia for this analysis.