Taxes matter to Michigan’s population growth

Growth officer and council should take note

Gov. Gretchen Whitmer’s Growing Michigan Together Council released a final report on ways the state could increase the state’s population Thursday. The report of the council’s findings mentions “funding” 54 times. It’s a good bet that means higher taxes to fund government solutions the council thinks are necessary.

Michigan’s Chief Growth Officer, a non-voting member of the growth council suggested in a November interview with Michigan Information & Research Service that tax hikes could be on the council or administration’s agenda. She told MIRS that there isn’t much correlation between low taxes and population growth.

That is not true. The correlation between taxes and population growth is abundantly demonstrated by academic papers that may even suggest a causal relationship between the two. The growth officer, council members and Whitmer administration should familiarize themselves with this literature.

Economists have searched for links between population growth and taxes for decades. A 2020 study titled “Taxation and migration: Evidence and policy implications” reviews existing academic research on personal income taxes and migration responses across global and sub-national taxing jurisdictions. Of the 12 studies examined, eight showed primary results of “strong mobility,” that is, a willingness to move to lower-taxed countries or within them.

A 2006 study titled “The Determinants of Net Interstate Migration, 2000-2004” found that inbound migration was a “decreasing function of the state individual income tax burden.” As individual income tax burdens rise, inbound migration falls.

Another study with tax implications was written at the Mackinac Center’s request by Professor Michael Hicks of Ball State University. His study found a possible association between a 10%-per-capita tax differential and the outbound annual migration of 4,700 Michigan residents.

The 11.5% income tax hike imposed on Michigan taxpayers in 2007 has been negatively impacting the state population since. Michigan has fallen further behind recently. Since 2021, 25 states have cut their personal income taxes, making them relatively more attractive to movers than the Great Lake State.

Taxes are not the only variable in the equation. Other variables matter too. One 2006 study shows that Michigan’s weather influences inbound migration to the state from between negative 1.5% to 0%. This means that Michigan must be even better on every vital policy to overcome the negative impacts of Mother Nature alone.

Government service quality can be attractive, and research shows that people are attracted to high quality public services such as schools, as found in the 2006 paper on the determinants of interstate migration. Yet governments must find ways to improve services without raising taxes.

A Mackinac Center review of nearly 100 academic studies on population and interstate migration growth by economist Hannah Kling reports similar findings, though Kling emphasizes the importance of quality. The more effective option to attract people is to improve services without hiking the cost to taxpayers.

She finds in general that economic performance — often exemplified by more economic freedom such as lower taxes and lighter regulation — and quality public services are three very key components to population growth.

There are other observations too that suggest correlations between population growth and taxes.

In November of this year the Tax Foundation published, “How do Taxes Affect Interstate Migration,” a report that uses Internal Revenue Service data to track where Americans are moving to and from. They report that 26 states enjoyed net gains in income tax filers and argued that “there is a strong positive relationship between state tax competitiveness and net migration. Overall, states with lower taxes and sound tax structures experienced stronger inbound migration than states with higher taxes and more burdensome tax structures.”

The top three states for inbound movers included Florida, Texas and North Carolina. The biggest losers were California, New York and Illinois.

Of the ten states with the biggest gains in taxpayers, eight had no personal salary or wage taxes. One had a flat personal income tax, and the other was moving toward one. The Tax Foundation reports that Michigan lost more than $1 billion in adjusted gross income to the outbound migration of tax filers from 2020 to 2021.

The state’s growth officer, population council and governor would be wise to take note.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.