How Attractive Is Your State?

REVISED (02/29/08)

Americans are known for "voting with their feet," that is, for moving to a more congenial locale, often across State lines. The reasons for doing so are many (e.g., being near family, getting away from family, taking a new job, retiring to a warmer climate, retiring to a climate and terrain conducive to winter sports). One of the reasons, of course, is to reduce one's State and local tax burden.

But moves based on tax reasons aren't tabulated in the 2008 Statistical Abstract, Table 31 (Movers by Type of Move and Reason for Moving: 2006), which seems (in my view) to understate the frequency of moves related to climate and retirement. A comparison of the totals in Table 31 with the corresponding totals in Table 33 (Mobility Status of Resident Population by State: 2005) suggests that Table 31 is incomplete, to the tune of about 6 million Americans out of the 45 million or so who change houses, counties, States, and countries every year.

So, it's up to me to quantify the extent to which decisions about interstate moves are influenced by State and local taxes, among other things.

1. Drawing on Table 33 (linked above), I found the rate at which Americans moved from one State to another in 2005. The answer is 2.47 percent. That is, 7.1 million of the 284.4 million Americans age 1 or older in 2005 were residents of a different State in 2004.

2. Every State gains some new residents from other States, but some States are net gainers and others are net losers. To measure a particular State's net gain or loss, I subtracted 2.47 percent (the all-State average) from the percentage of residents who moved into that State from other States. Nevada is at one extreme, with a net gain of 3.07 percent; New York is at the other extreme, with a net loss of 1.24 percent.

3. Overall, there is a negative correlation (-0.399) between net gain and tax burden; the lower the tax burden, the greater the gain. Graphically:

Sources: Net moves = net percentage of a State's population gained from/lost to other States. Net moves are computed at described in the text. Tax burdens for 2004 are from this table, available via this page at the website of The Tax Foundation.

4. Tax policy evidently has a strong effect on decisions to move from State to State. Another quantifiable factor to be accounted for is population. As it turns out, the less populous a State, the greater its attraction:

REVISED PORTION:

5. I took the obvious next step and ran a regression with natural logarithms of tax burden and population as explanatory variables, with this result:

Net population gain or loss (as a decimal fraction of previous year's population) =
-0.049256
-0.027145 x natural logarithm of State + local tax burden (as a decimal fraction)
-0.005241 x natural logarithm State's population (in millions)

The R-squared of the equation is 0.420. The F-test on the regression and the t-statistics on the intercept and explanatory variables all are significant at the 0.995 level of confidence, or better.

In other words, after adjusting for population, a 1-percentage point increase in the tax burden from the mean rate of 10.29 percent yields a net population loss of 0.25 percent.

6. The regression equation, as indicated by its fairly low R-squared, leaves much to be explained by factors other than tax burden and population (the latter of which may be a rough proxy for work and family connections). The difference between a State's actual net gain or loss and the net gain or loss estimated by the equation tells us something about that State's inherent attractiveness (or unattractiveness). For example, the actual net population gain for Arizona is 2.57 percent; the estimated net gain, 0.25 percent. The difference (known as the residual) is 2.32 percent, which is the largest residual for any State. Arizona is therefore (and for obvious reasons, given its climate) an inherently attractive State. At the other end of the spectrum is Michigan, with a residual of -1.19 percent, which makes it the least inherently attractive State (for entirely fathomable reasons, given its economy).

7. So, I have two measures of a State's attractiveness

• overall attractiveness -- net percentage of population gained from or lost to other States

• inherent (natural) attractiveness -- the portion of overall attractiveness that is not explained by taxes or population

What really matters, of course, is overall attractiveness, or the lack thereof. Unsurprisingly, the upper Midwest and Northeast dominate the list of 15 least-attractive States (those with negative values in the left panel of the table below). Inherent attractiveness (the right panel of the table below) is, nevertheless, an interesting property. The difference between overall attractiveness and inherent attractiveness is a good measure of the gain (or loss) in a State's attractiveness because of its tax burden and/or population. Thus:

The two graphs immediately above underscore the importance of taxes and population (that is, the lack thereof) to a State's overall attractiveness.

States that gain or lose significantly (more than a standard deviation from the mean of 0.59%) fall into three categories:

• Less-populous States that make themselves significantly more attractive through below-average tax burdens: Alaska (gain of 2.70%, tax burden of 6.6%), Delaware (1.92%, 8.4%), Montana (1.50%, 9.6%), New Hampshire (1.78%, 8.1%), North Dakota (1.68%, 9.7%), South Dakota (1.86%, 8.7%), and Wyoming (1.79%, 9.7%).

• More-populous States that make themselves significantly less attractive through above-average tax burdens: California (-0.82%, 10.8%), Illinois (-0.11%, 10.5%), New York (-1.07%, 13.5%), Ohio (-0.30%, 11.3%), and Pennsylvania (-0.11%, 10.3%).

• Populous States with below-average tax burdens whose rapid growth seems to be undermining their attractiveness: Florida (-0.19%, 9.9%) and Texas (-0.18%, 9.4%).

How does your State stack up? See for yourself:

Overall attractiveness				Inherent attractiveness
1	Nevada	3.07%	1	Arizona	2.32%
2	Wyoming	2.91%	2	Nevada	2.22%
3	Arizona	2.57%	3	Idaho	1.46%
4	Idaho	2.50%	4	Florida	1.41%
5	Alaska	2.44%	5	Wyoming	1.12%
6	Delaware	1.85%	6	Georgia	1.02%
7	Oregon	1.72%	7	Oregon	1.01%
8	New Mexico	1.64%	8	Hawaii	0.87%
9	Hawaii	1.55%	9	Washington	0.79%
10	Montana	1.52%	10	New Mexico	0.65%
11	Colorado	1.30%	11	Virginia	0.61%
12	New Hampshire	1.28%	12	North Carolina	0.58%
13	Florida	1.21%	13	Colorado	0.57%
14	Arkansas	1.16%	14	South Carolina	0.51%
15	Georgia	1.14%	15	Arkansas	0.51%
16	Washington	1.02%	16	Maryland	0.28%
17	South Carolina	1.01%	17	Utah	0.21%
18	South Dakota	0.99%	18	Montana	0.02%
19	Virginia	0.88%	19	Texas	0.01%
20	Vermont	0.86%	20	Kansas	0.00%
21	Utah	0.83%	21	Maine	-0.03%
22	Tennessee	0.75%	22	Delaware	-0.07%
23	North Carolina	0.71%	23	Vermont	-0.09%
24	Oklahoma	0.69%	24	Tennessee	-0.11%
25	North Dakota	0.62%	25	New York	-0.17%
26	Maryland	0.56%	26	Oklahoma	-0.20%
27	Kansas	0.55%	27	Alaska	-0.26%
28	Maine	0.44%	28	Iowa	-0.28%
29	Iowa	0.38%	29	Missouri	-0.35%
30	Mississippi	0.36%	30	California	-0.36%
31	West Virginia	0.19%	31	Mississippi	-0.37%
32	Missouri	0.11%	32	New Jersey	-0.38%
33	Alabama	0.08%	33	Connecticut	-0.46%
34	Kentucky	0.04%	34	Kentucky	-0.48%
35	Nebraska	0.03%	35	Pennsylvania	-0.50%
36	Rhode Island	-0.13%	36	New Hampshire	-0.51%
37	Connecticut	-0.13%	37	Wisconsin	-0.58%
38	Texas	-0.17%	38	Ohio	-0.59%
39	Indiana	-0.33%	39	Illinois	-0.60%
40	Minnesota	-0.44%	40	Indiana	-0.63%
41	New Jersey	-0.44%	41	Nebraska	-0.63%
42	Wisconsin	-0.60%	42	West Virginia	-0.69%
43	Pennsylvania	-0.60%	43	Minnesota	-0.70%
44	Massachusetts	-0.72%	44	Alabama	-0.85%
45	Louisiana	-0.75%	45	South Dakota	-0.86%
46	Illinois	-0.77%	46	Rhode Island	-0.98%
47	Ohio	-0.89%	47	Massachusetts	-1.02%
48	California	-1.18%	48	North Dakota	-1.07%
49	Michigan	-1.20%	49	Louisiana	-1.16%
50	New York	-1.24%	50	Michigan	-1.19%