Follow the Money: How Wealth and People are Relocating Around the US

The migration of Americans around the United States is one of the key indicators of state economic health. When people are moving into a state, economic growth often follows. Those people will shop at local stores, frequent restaurants, and otherwise engage in activities that lead to increased employment, greater demand for local goods and services, more competitive job markets, and, of course, business formation. As people move around the country, so do their incomes.

Using tax data to measure how those incomes are moving around the country provides insights into which states are most effective at attracting people and wealth through public policy. The recently updated Migration Data series from the Internal Revenue Service’s “Statistics of Income” provides exactly the data needed to do so. These latest data provide a window into how people and wealth have moved around the country from 2021 to 2022, according to reliable data from federal income tax returns.

Unsurprisingly, the states ranking at the top of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index for 2024 were more likely to see people and wealth moving in instead of moving out. Of the top 20 states in those rankings, 17 saw net in-migration of wealth, and 18 saw net in-migration of people. The 10 states gaining the most AGI from domestic migration over this period all ranked in the top 20 in Rich States, Poor States.

Individuals’ choices about where to live and work are often motivated by taxes, and none stings quite as much as the personal income tax. They are moving out of states that take the largest share of their paychecks and into those with low or no personal income taxes. Out of the 10 states gaining the most wealth (measured as adjusted gross income, or AGI) over the 12-month period, only South Carolina has a progressive personal income tax. Five impose a flat personal income tax rate, while the remaining four levy no personal income tax at all.

Florida and Texas were the two biggest winners according to the latest data. They respectively gained $35 billion and $10 billion in AGI from 2021 to 2022. In recent years, they have been the fastest growing states in the country, thanks in large part to the millions of Americans and many businesses relocating there. The economic environments in these states are particularly attractive, as they have no personal income taxes, low overall tax burdens, policies protecting economic freedoms, and demonstrate commitment to fiscal responsibility.

On the opposite end, California and New York saw the largest amounts of wealth out-migration. The states lost $24 billion and $14 billion, respectively, in AGI. Out-migration of businesses, people, and wealth has a deleterious effect on state tax collections. For example, when a Californian moves to Texas, they bring their taxable income with them. The taxpayer benefits from the low-tax environment in Texas, and the state of California loses out on the tax payments that person would have made. As the Golden State lost a net of about 300,000 residents and $24 billion in individuals’ incomes over just 12 months, income tax revenues have fallen far short of expectations. For its Fiscal Year 2025 budget, California leaders reconcile a nearly $50 billion deficit through  and drawdowns of the budget stabilization fund, and its problems may be far from over.

The fiscal policy troubles do not end in California. Four out of the five states seeing the fastest out-migration of wealth have faced fiscal troubles during this year’s budget season. Due to a combination of overspending and disappointing revenues, California, Massachusetts, Illinois, and New York each faced some form of budget crunch – from the Bay State’s $1 billion revenue shortfall to the Empire State’s $4.3 billion deficit. The fifth state seeing the fastest out-migration, New Jersey had a budget surplus this year, but analyses suggest the state’s current trajectory will find it in multi-billion dollar deficits in the coming years.

By contrast, not one of the top 5 states for wealth in-migration faced any such circumstance. North Carolina, for example, ended up with a surplus of over $1 billion—firmly refuting the misconception that tax cuts lead to revenue shortfalls. In Florida, where there is no personal income tax, Governor Ron DeSantis signed a budget that included $1.5 billion in tax relief and brought state debt levels to a 25-year low.

In the 50-state competitive policy environment, data such as these demonstrate how and why people and businesses move around the country. Rich States, Poor States has found that these moves are often related to and based on key economic policies. Fiscal responsibility and pro-growth policy can lead to a virtuous economic cycle, as is being seen in the top-gaining states. High tax states, by contrast, find they cannot tax their residents into prosperity. Increasing taxes accelerates out-migration, shrinking the tax base and undercutting state revenues. The path forward for states looking to increase prosperity is nurturing a bustling economy and robust job market through pro-growth economic policies.