IRS numbers show income tax winners and losers by state

Latest numbers from the Internal Revenue Service show changes in the individual income tax base for each state, with the Sunbelt region outpacing the rest of the country, and gains coming at expense of its northern neighbors. Florida???s economy is basking in a whopping $5 billion increase among new residents??? incomes in the most recent tax years the agency tallied. Most of this new earning power accruing to the Sunshine State is coming from New York ??? 16 percent of it to be exact.

Rounding out the top three states attracting new incomes in percentage terms are South Carolina and Arizona.

The clear loser is New York, which overall saw $3 billion in incomes vanish. Rounding out the top three states that lost the most incomes in both percentage and dollar terms are Illinois and New Jersey, where the former lost $2 billion in incomes and the latter $1.7 billion.

Since 1991, the Internal Revenue Service has been compiling statistics on filers??? addresses, which the agency???s Statistics of Income Division uses to show who is moving into and out of every county and state in the nation. As you???d expect, the IRS also knows the aggregate income levels of those who move. So the movements of the most fundamental productive components of the economy ??? taxpayers ??? can be analyzed by journalists and economists.

There were concerns in 2012 about whether the IRS would continue providing the data. Initially, agency officials said the program would be cancelled, and after some media scrutiny, reversed course and belatedly provided data for the 2010 and 2011 tax years. The good news is that the agency has already signaled it will provide data for 2011 and 2012 and will announce a release schedule that will help make this a reliable economic indicator.

Clearly, it is an important economic indicator to anyone who is not in denial about the consequences of a shrinking tax base. The fall of once-proud cities, such as Detroit, result from a declining tax base. In the Motor City, sputtering tax revenues spawned chronic budget shortfalls and diminished services that only hastened tax flight. When elected officials bury their heads in the sand for years or decades, the result is financial collapse and bankruptcy.

The data also can effect much-needed change. In solidly blue Maryland, for example, media attention prompted policymakers in both parties to realize that a mass exodus of taxpayers harms the state and especially Baltimore, a case study in tax flight among major cities in the mid-Atlantic. While the most recent decline is less pronounced, the damage has already been done in high-taxed Maryland. From 2000 to 2010, the state lost $5.5 billion in taxable revenues. Gubernatorial candidate David Craig has announced a plan to reduce and eventually eliminate Maryland???s income tax ???to keep families together.??? A tenth generation Marylander, he would prefer to keep his children and grandchildren in the state.

Speaking of income taxes, nine states without a levy on earned income, with the exception of Alaska, gained additional taxpayer revenues. In addition to Florida, that includes Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.  Those are states where more people are paying sales and property taxes, buying homes and making everyday purchases. Here is a compelling case to be made about the dynamic growth effects of reducing personal tax liabilities.

While there are any number of conclusions that can be made about what causes a rising or declining tax base, there is another trend that is unmistakable. With only a few exceptions, 22 states that had right-to-work laws in 2010 gained taxpayers. When Boeing selected South Carolina for the 787 Dreamliner assembly plant in 2009, the influx of high-wage construction, engineering, management, and manufacturing jobs had a profound impact on the otherwise small state.

A strong correlation can be made between a state???s tax burden and the degree to which people flee. New York and New Jersey have the highest tax burdens in the country, according to the Tax Foundation.

Much less clear is the impact of new governors in Ohio, Michigan, New Jersey, and Wisconsin who were elected on campaigns that promised sweeping fiscal and tax reforms. The same holds true in New York where Gov. Andrew Cuomo is calling for tax relief. We will have to wait for the 2011 and 2012 numbers to see if these new policies reverse migration patterns or at least reduce the exodus of taxpayers.

Time will tell. In the meantime, people will continue to vote with their feet. In a mobile society taxpayers have choices and elected officials with vision and a desire to grow their economies understand that.