Income Growth Doesn’t Stop Tired ‘Outmigration’ Claims

The story of an alarming "exodus" of income is highly questionable at best.

Published on Oct 31, 2016 in Tax and Budget

outmigration-slice-01New Jersey’s overall reported income grew by $19 billion last year, adding up to an impressive $320 billion for 2015 as a whole, according to the latest statistics released this month by the Internal Revenue Service.

But that fact didn’t stop business lobbyists pointing to another, much less significant number – the supposed “loss” of $2.4 billion to “outmigration,” which accounts for less than 1 percent of total household income – and insisting that it is an economic crisis that must be addressed by cutting taxes, almost exclusively for the state’s most well-off and for successful corporations.

But updating numbers to inflate a bogus storyline of a massive “exodus” of wealth and people from New Jersey doesn’t make it a more accurate portrayal. When these numbers are put into context, the story becomes highly questionable.

First, as noted above, the amount supposedly lost to “outmigration” is barely a rounding error. Same holds true for the past 11 years. The supposed “loss” of $20.7 billion in income loses its wow factor when compared to the $3.1 trillion in total household income that was generated in New Jersey between 2004 and 2015.

Even more importantly, just because a person moves from one state to another doesn’t mean the state they leave loses all their income; this interpretation has been called out by tax experts as a gross misreading of income data.

That’s because the income reported by filers that have moved out of state has no connection to the departure state. It actually refers to how much money they earned after they moved to another state. Further, when someone relocates to another state for a new job, it is likely the position they left behind will still exist – just as the job they take existed before their arrival. Thus the income in the departure state is likely to remain.

And on a macroeconomic level, “migration of money” refers to what economists call capital mobility, which is not to be confused with labor mobility. They are distinct phenomenons but because capital mobility figures are harder to come by, commentators commonly site labor or population migration figures instead. Misinformation of this kind only creates confusion and does nothing to address New Jersey’s real challenges or help the state’s economic future.

As noted in our June report, very few Americans leave their home state every year and when they do the most common reasons for relocating have more to do with job opportunities and family obligations than fleeing high taxes. Study after study has debunked the tax migration myth, and the latest IRS migration data verifies what we already know to be true here in New Jersey.

If high tax rates explain New Jersey’s “outmigration” then the “tax flight” fear-mongers should explain why so many New Jerseyans select states with similar tax levels like New York, California and Maryland. In fact, much like the past decade more filers from New York moved into New Jersey (23,156) in 2015 than left New Jersey for New York (19,562). And every time we hear about residents fleeing for Pennsylvania (11,846 in 2015) there is always radio silence about the thousands of Pennsylvania households moving into New Jersey (9,395 in 2015). That means about 8 in 10 of New Jerseyans were replaced by Pennsylvania households moving to New Jersey last year – a pattern has been consistent for at least 12 years.

There is, quite simply, much more to the story. New Jersey’s population is actually growing – in large part thanks to births and immigrants – and with that growth comes increasing overall household income. It may be growing slower than our neighboring states (after all, we are already the most densely populated state in the nation) but the assertion that our economy is circling the drain because people are fleeing the Garden State and producing a net loss in state income has no place in any serious economic policy discussion.