Mobility and the march to freedom

Top 10 inbound vs. top 10 outbound US states in 2021: How do they compare on a variety of economic, tax, business climate, and political measures?

CARPE DIEMDecember 29, 2021

New US state population and state migration flow data for 2021 were released last week by the Census Bureau — “State Population Totals and Components of Change: 2020-2021” — and this is an update of my annual state migration analysis that attempts to answer the question: What significant differences are there between America’s top ten inbound and top ten outbound states when they are compared on a variety of measures including political party control of state government, business climate, individual and corporate tax burdens, state fiscal health, electricity and housing costs, economic outlook and performance, and labor market dynamism?

Based on the Census Bureau’s measure of “Net Domestic Migration” the top ten inbound and top ten outbound US states from April 1, 2020, to July 1, 2021, are displayed in the top chart above (data available here). (Note that the format of the Census Bureau’s state population and migration data has changed this year from previous years. My previous annual migration reports were based on the Census Bureau’s state-to-state migration flows, which haven’t yet been updated since 2019.) Population inflows to the top ten inbound states range from highs of 264,000 and 211,000 for No. 1 Florida and No. 2 Texas to a 34,280 inflow to No. 10 Nevada, and outflows from the top ten outbound states were as high as 429,000 for No. 1 California, 406,000 for No. 2 New York and 153,300 for No. 3 Illinois. In total, the top ten inbound states gained slightly more than 1 million new residents from April 2020 to July 2021 and the top ten outbound states experience an outflow of nearly 1.2 million residents. 

Q: Based on 2020-2021 net domestic migration flows from the Census Bureau data, are there any significant differences between the top ten inbound and top ten outbound states when they are compared on a variety of measures of political party control, business climate, business and individual taxes, fiscal health, electricity and housing costs, economic performance and outlook, and labor market dynamism? Assuming that many Americans and US companies “move/vote with their feet” when they relocate from one state to another, is there any empirical evidence to suggest that Americans are moving to red states that are relatively more economically vibrant, dynamic, and business-friendly, with lower tax and regulatory burdens, lower energy and housing costs, with more economic and job opportunities, from blue states that are relatively more economically stagnant with higher taxes and more regulations, higher energy and housing costs, and with fewer economic and job opportunities?

The table above (click to enlarge) summarizes a comparison between the two groups of US states (top ten inbound and top ten outbound) on 14 different measures of state partisan composition, economic performance, labor market dynamism, business climate, electricity and housing costs, tax climate, and fiscal stability for those ten states. And on each of those 14 measures, there is empirical evidence that the top ten inbound states are on average out-performing the top ten outbound states, suggesting that domestic migration patterns in the US do reflect Americans and firms “voting/moving with their feet” from Democratic-controlled, high-tax, business-unfriendly, fiscally unhealthy, economically stagnant states with relatively high electricity and housing costs to Republican-controlled, lower-tax, more business-friendly, fiscally healthy and economically vibrant states with lower electricity and housing costs. Let’s review those 14 measures, one at a time:

1. Right-to-Work. All ten of the top inbound US states in 2021 are Right-to-Work (RTW) states, while eight of the top ten outbound states are forced-unionism states (all except Louisiana and Michigan). According to many studies like this one by my AEI colleague Jeff Eisenach (emphasis mine):

There is a large body of rigorous economic research on the effects of RTW laws on economic performance. Overall, that research suggests that RTW laws have a positive impact on economic growth, employment, investment, and innovation, both directly and indirectly.

Therefore, it would make sense that American businesses and workers are leaving low-growth, forced-unionism states for higher-growth, RTW states with more dynamic labor markets and greater job opportunities.

2. State Partisan Composition. The National Conference of State Legislatures regularly tracks and reports the party control of state legislatures and governors. Based on the 2021 state and legislative partisan composition, the table above shows that for the top inbound states, Republicans control the legislatures in nine of the ten states (all except No. 10 Nevada) and 8 of the inbound states have Republic governors. For the outbound states, Democrats control the legislatures of seven out of ten states (including all of the top five outbound states) and 8 out of 10 of the state governor’s offices. Therefore, there seems to be strong evidence that just based on political party control at the state level, millions of Americans are moving away from blue-controlled states to red states. Of course, there is a strong correlation between blue/red control of state governments and differences in the other metrics that will be discussed below including state taxes, state business climates, and economic performance and outlooks.   

3. State Tax Burden. Earlier this year, Wallet Hub released a study on the “Overall Tax Burden by State” that measured the percentage of each state’s total personal income that goes to state and local taxes in the form of a) individual income taxes, b) property taxes, and c) sales and excise taxes. The average state tax burden for the top ten inbound states was estimated to be 7.7% compared to a 9.9% average tax burden for the top ten outbound states. Eight of the 12 US states ranked by the highest total state tax burden (New York, Hawaii, Connecticut, Minnesota, New Jersey, Illinois, California, and Maryland) were in the ten highest outbound US states in 2021.

4. Income Taxes. a) According to the Tax Foundation, the average top individual income tax rate in the top ten inbound states was 3.8% in 2021 compared to an average top tax rate of more than twice the 8.0% average for the top 10 outbound states. Four of the top 10 inbound states — Florida, Texas, Tennessee, and Nevada — have no state individual income tax. The No. 1 outbound state – California – has the country’s highest top marginal state income tax rate at 13.3%, and not far behind are Hawaii and New Jersey at 11% and 10.75% (the only other states with the highest marginal income tax rates in double-digits) and Minnesota at 9.85%. 

b) Similarly, the average top corporate tax rate based on Tax Foundation data in the top ten inbound states was 4.1% last year compared to 8.3% in the top ten outbound states. Two of the top inbound states — Texas and Nevada — have no state corporate income tax. It’s an ironclad law of economics that if you tax something you get less of it, and it’s therefore, no surprise that Americans and businesses are leaving relatively high tax states for relatively low tax states (for both individual and corporate taxes).

5. Forbes Best States for Business. Based on its most recent annual state ranking that measures six business categories: business costs, labor supply, regulatory environment, current economic climate, growth prospects, and quality of life, Forbes rated North Carolina, the No. 4 inbound state in 2021, again as the best US state for business last year. Six of the other US states in the top ten inbound states (Texas, Utah, Florida, Georgia, Tennessee, and Idaho) ranked in the top ten best US states for business according to Forbes, and all of the top ten inbound US states in 2021 ranked in the top one-third of Forbes’ best states for business. The average Forbes ranking for the top ten inbound states last year was 8 out of 50 compared to the average ranking of 33 out of 50 for the top ten outbound states. For the category “Business Cost” in the Forbes study four of the top inbound US states — Texas, North Carolina, Nevada, and Tennessee — ranked in the Forbes’ top ten for that category. Not surprisingly, four of the top outbound states in 2021 – California, Massachusetts, New Jersey, and Hawaii — were ranked from No. 47 to No. 50 by Forbes as the four US states with the highest business costs. 

6. Business Tax Climate Rankings. Every year The Tax Foundation calculates and reports its State Business Tax Climate Index based on each US state’s corporate income taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. In the most recent Tax Foundation rankings, three of the top ten outbound states (New York, New Jersey, Connecticut, and California) were the three US states with the worst business tax climate and three other states (Louisiana, Hawaii, and Minnesota) were among the ten US states with the worst business climate. 

For the top ten inbound states, four (Florida, North Carolina, Utah, and Nevada) were in the top ten US states for the best business climate, and all inbound states except South Carolina were in the top half of US states for the best business tax climate. The average business tax climate ranking for the top ten inbound states was 17 (top half) compared to an average ranking of 39 (bottom one-quarter) for the top ten outbound states (where a rank of 1 is the best business tax climate and 50 is the worst).

7. State Fiscal Stability Rankings. US News and World Report recently ranked US states by “fiscal stability” based on both a short-term and long-term basis. State credit ratings and public pension liabilities measure long-term financial health, while asset liquidity and a state’s budget management (spending vs. revenue) are used to measure short-term health. According to the report, “The fiscal stability of a state’s government is vital to ensuring the success of government-sponsored programs and projects and the quality of life of the state’s residents.” 

Six of the top inbound states are ranked in the top 10 US states for the highest level of fiscal stability (Tennessee, Idaho, Utah, North Carolina, Florida, and Texas). Three of the top ten outbound states were among the five US states with the worst fiscal stability rankings – Illinois (No. 50 for fiscal stability), New Jersey (No. 49), New Mexico (No. 47), and Connecticut (No. 46). The average fiscal stability ranking for the top ten inbound states was 15 (top one-third) compared to an average ranking of 38 for the top ten outbound states (bottom one-quarter), suggesting that the fiscal condition of the top inbound states is significantly more stable and sound than the condition of the outbound states. 

8. The Average Electricity Cost by state is another factor that might contribute to businesses and households moving from states with relatively high energy costs to states with lower energy costs. According to data from the Energy Information Administration on the “Average Price of Electricity to Ultimate Customers,” the average price of electricity in October 2021 for all sectors (residential, commercial, industrial, and transportation) was 9.63 cents per kilowatt-hour for the top ten inbound states last year. For the top ten outbound states, the average cost of electricity in 2021 was 15.74 cents per kilowatt-hour, which is 63.4% higher than the top ten inbound states. The two US states with the highest electricity costs (except for Alaska and Hawaii) are California and Massachusetts and those two states were among the top ten outbound states last year. Because electricity costs affect both the cost of living for households and the cost of operation for businesses, it’s not surprising that the states with the highest electricity costs are losing population to states with lower energy costs.   

9. Median Home Price by state is another new measure that could affect US migration patterns, and it does appear that Americans are leaving states with high housings costs to move to states with lower median home prices. The median home prices by state in the table above are from Zillow and show for the top ten inbound states, the average of the median home prices for those states is $343,519 compared to $423,548 for the top ten outbound states. The median home in the top ten outbound states is $80,000 (and 23%) greater on average than for the top ten inbound states, which could partly explain the outbound migration from states with high housing costs to states with lower housing costs. Based on a 10% down payment and a 4% 30-year fixed-rate mortgage, annual housing costs in the top ten inbound states would be more than $4,000 lower than the top ten outbound states.  

10. Economic Outlook and Performance. The last three categories above show economic outlook and performance measures for each of the 20 states based on (a) the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index that ranks the economic competitiveness and outlook of each state, (b) the average state unemployment rate in 2020, and c) the annual employment growth through November 2021. 

The Rich States, Poor States “economic outlook” is a forward-looking economic forecast measure based on the state’s standing in 15 important state policy variables. For 2021, the average economic outlook ranking for inbound states (1 = best and 50 = worst) was 10 (top one-fifth) compared to an average ranking of 39 for the outbound states (bottom one-quarter). Five of the inbound states ranked among the top ten US states for the best economic outlook (Florida, Texas, North Carolina, Utah, and Nevada. Utah and Florida led the rankings as the two US states with the best economic outlooks. In contrast, 7 of the ten outbound states (California, New York, Illinois, New Jersey, Maryland, Hawaii, and Minnesota) ranked between No. 40 and No. 50 as states with the worst economic outlooks. 

For the top ten inbound states, the average jobless rate in 2020 was 7.4% (below the national average of 8.1%), and the average annual job growth through November 2021 was 4.0%. In contrast, the average unemployment rate last year was 9.1% (above the 8.1% national average by a full percentage point), and 2.5% for annual job growth through November 2021. In other words, compared to the top outbound states, the average jobless rate for the inbound states was nearly two percentage points lower (7.4% vs. 9.1%) and annual employment growth was higher by 1.5 percentage points (4.0% vs. 2.5%).

Those three important economic indicators suggest that the top ten inbound states are stronger economically on average than the top ten outbound states with much stronger economic outlooks and more robust labor markets with lower jobless rates and greater rates of job creation.

Bottom Line: Based on detailed state-to-state migration data in 2021 from the Census Bureau, the migration patterns of US households (and businesses) followed predictable patterns, reflecting differences among states in state political control, economic growth and outlooks, tax burdens, business climate, energy and housing costs, labor market robustness, and fiscal stability. To answer the questions posed above, there are significant differences between the top ten inbound and top ten outbound states when they are compared on a variety of 14 measures of state political partisanship, economic performance and outlook, business climate, tax burdens for businesses and individuals, fiscal stability, electricity and housing costs, and labor market dynamism. There is empirical evidence that Americans and businesses “vote with their feet” when they relocate from one state to another, and the evidence suggests that Americans are moving from blue statesthat are more economically stagnant, fiscally unhealthy states with higher tax burdens and unfriendly business climates with higher energy and housing costs and fewer economic and job opportunities, to fiscally sound red states that are more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens, lower energy, and housing costs and more economic and job opportunities.