Blue States Face Exodus; Red States Enhance Fiscal Appeal

Migration Trends and Tax Policies: A Tale of Two Americas

The latest figures from the U.S. Census Bureau reveal a continuing trend: people are moving away from states like California, New York, and Illinois—often referred to as “blue states”—and heading towards “red states” such as Tennessee, Texas, North Carolina, and Georgia. The reasons for this migration include not just high taxes but also steep housing costs and concerns about crime.

Katherine Loughead, a senior policy analyst at the Tax Foundation, has analyzed the data and found a correlation between tax burdens and migration patterns. States with lower tax burdens per capita than the national average saw an influx of new residents, while those with higher tax burdens experienced the opposite.

In a surprising move, blue state lawmakers are proposing to increase taxes further. New York’s legislature has passed budgets that would raise both personal income and corporate tax rates. Governor Kathy Hochul has expressed opposition to these hikes, while some progressives argue they don’t go far enough.

Illinois Governor J.B. Pritzker is pushing for tax increases to address a budget deficit, proposing a plan that would raise state tax revenues by nearly $900 million. Conversely, California Governor Gavin Newsom has blocked several proposed tax hikes, leaving the decision on an upcoming income tax increase to the state’s voters.

Meanwhile, red states are bolstering their fiscal appeal. Georgia lawmakers are considering a bill to reduce the state’s flat income tax rate further, while Iowa is looking to cement its recent tax reforms with a constitutional amendment that would make it harder to reimpose progressive income taxes or raise existing rates.

As competition heats up among states for residents and businesses, some leaders recognize the risk of increasing taxes. Former D.C. Mayor Anthony Williams and Yesim Sayin of the D.C. Policy Center have voiced concerns about proposed tax hikes driving businesses to relocate to states with more favorable climates.

This ongoing fiscal tug-of-war highlights the stark differences in how states approach taxation and economic growth, with potential long-term implications for their populations and financial health.

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February 2025
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