Migration of the Tax Base
April 2, 2026
Recent shifts in state and local tax policies have intensified debates about their effect on taxpayer migration. Some jurisdictions have reduced income tax rates or adopted flat taxes, while others have raised—or threatened to raise—income tax rates. As a result, more focus has emerged on the impacts of these changes on taxpayer migration.
There are obviously many variables that factor into a decision to move to another state. One may relocate for a new job, better weather or proximity to family, in addition to tax considerations. In light of all the headlines about tax policy and potential disruption to state tax bases, the recent release of the Internal Revenue Service’s (IRS) adjusted gross income (AGI) migration data warranted a fresh look.
Today’s Chart of the Week shows the net impacts of AGI flows between states with the highest and lowest marginal income tax rates. The table shows a clear migration of AGI from high-tax to low-tax states. These flows total about $16.5 billion (B). In total, across all U.S. states, California, New York and New Jersey saw net outflows of $11.9B, $9.9B and $2.6B, respectively. Notable low-tax states like Florida and Texas saw total net inflows of $20.6B and $5.5B, respectively. Despite AGI migration from high-tax to low-tax states continuing, the margin has declined from previous IRS releases.
While this is the most recent IRS data, it is still dated, with the information coming from returns filed in 2023 for the 2022 tax year. This data could reflect the continued impacts of the pandemic and the possibility that remote work yielded elevated migration readings. However, as the availability of remote work continues to decline, so too may the migration of the labor force and tax base.
The 2017 Tax Cuts and Jobs Act, which capped the State and Local Tax (SALT) deduction at $10,000, is also likely to affect taxpayer migration. However, with the passage of the One, Big, Beautiful Bill Act and the increase in the SALT cap to $40,000 for many taxpayers through 2029, further migration out of high-income-tax states could slow. If implemented, the wealth taxes currently being proposed in various states could lead to greater AGI migration, as several high-profile billionaires have already expressed their stance and relocated.
Key Takeaway
The AGI migration trends—and their impact on the tax base—should be closely watched when analyzing the credit quality of municipal issuers. Although AGI has continued to flow from high-tax states to low-tax states, the trend has moderated relative to prior IRS data. In addition, net AGI outflows from high-tax states are small compared with total AGI. In the most recent IRS report, for example, the net outflow as a share of total state AGI was only 0.64% for California and 1.05% for New York. However, if calls to further tax high-income earners intensify, outmigration of the tax base could accelerate.
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