Where will you retire? Near family and friends, close to a good medical facility and easy access to transportation, shopping, entertainment, where the climate best suits you, where the state and local taxes allow you to live better? The decision where to live out your golden years is personal, of course. For many Americans, in and before retirement, statistics show the population map is being redrawn to a large extent, favoring states where the taxes are low.
Take New York for example. A lot of people thrive on the culture and the fast pace of the Big Apple. But the high cost of living – a big part of which is high state and local taxes – seems to have taken a toll on the state’s revenue. A study ( based on tax returns filed by New York residents from 2000 to 2010) by one tax advocacy group, the Tax Foundation, shows the state has lost personal income amounting to $45.6 billion as residents take their money and move.
Where Did it Go?
A good chunk of that income moved to Florida. No surprise there, right? The climate is agreeable and for Florida residents, there is no state tax, a great place to retire perhaps. But it’s not just climate (and not just retirement) that is driving the migration. Because while Florida is the number one siphon of personal income out of New York, number two is New Jersey and number three is Connecticut. They are both also high tax states, though not as high as New York.
Besides Florida, some other states which increased personal income are Arizona, with very low taxes and Texas, with no state taxes, and both with warmer climates than New York.
What about California? People like the climate, overall, and many appreciate the glitz of Hollywood or the culture of San Francisco. But California with high state income tax lost $29.4 billion in personal income. And this was before California gained the dubious distinction of becoming the state with the highest tax rate in the nation. Future studies may show a much bigger loss of income for California, which is currently in dire financial straits.
Another Study
The IRS recently summarized data from tax returns filed in 1995 to 2010, also showing how money has moved around the country. Based on that information, author Travis H. Brown wrote How Money Walks. Leaving opinion aside, he looked strictly at what the IRS data revealed. “We’re talking not about a survey, not a sample, not a focus group. We’re talking about actual results of people’s gross income,” he said in a TV interview. Again, people move for a variety of reasons. But looking solely at the tax side, here are the results during the same period of years:
- The nine states which have no personal income tax – Alaska, Florida, New Hampshire,
Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming – gained $146.2 billion in adjusted gross income.- The nine areas with the highest personal income tax – California, Hawaii, Oregon, Iowa, New Jersey, Vermont, New York, Maine, and Washington D.C. – lost $107.4 billion.
Surprise!
Florida and Texas have been magnets for newcomers for a while. People go there for favorable taxes, climate, business culture, and other more individual reasons. But you may not know that one of the best kept secrets is another state which has also become a magnet for new residents, especially retirees.
Eastern Tennessee, atop the Cumberland Plateau is a haven of scenic beauty and favorable taxes to many folks. CBN News interviewed one couple –Dennis and Karen Shaw – who left the D.C. suburbs to retire on the Plateau. “When I left there I was paying $4,000 a year in taxes and when I moved down here my taxes went to $750.” That difference allows them to live closer to the way they hoped to live in retirement.
Karen Shaw told reporters, “We have here the home that we wanted, the land that we wanted, the amenities that we really wanted.”
In How Money Walks, Brown agrees it would be a stretch to assume taxes is the sole reason for the outflow of money from areas like New York and California. “I am not drawing a causation about migration and taxes, but there is an undeniable correlation here.”
Many, said Brown, move to areas like Tennessee or Texas because they can buy a home for much less than in high cost-of-living states. But what is often more important in the long run is the cost to maintain the home, like property taxes. This is especially true for retirees who may purchase a home outright but then be unable to pay sky-high property tax each year. Of course, the other factors have to fall into place too.
As noted earlier, as people moved out of New York, causing a huge loss of personal income to the state, most went to Florida. But many went to states close to New York, which are also on the high cost side. Presumably those migrants prefer that geographic sector of the country and/or had close family or business ties there, or any of a host of other reasons. A short move let them maintain those ties and maybe save a little money in the process. If taxes had been the key factor for those people, they would’ve kept the moving truck rolling on down to Tennessee, Florida, or beyond.
Still, any area which is hoping to attract newcomers, may want to pay close attention to what the IRS data shows. States and areas with low or no personal income tax attract people, for sure. Combine favorable taxes with natural beauty, an agreeable climate, plenty of medical facilities and other amenities, and throw in some gorgeous golf courses and you’ve got a magnet, especially for retirees. And with all that weather and scenery, the kids and grandkids will visit. Maybe they’ll even opt to make the move themselves.
Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.