Monday, January 15, 2018

Wyoming Losing Middle-Class Taxpayers

Following up on Saturday's note on interstate migration, here are more numbers, this time covering the period 2012-2016. The raw database from the IRS is quite dense, so we will have to extract the relevant information one piece at a time. 

The net migration numbers - subtracting outbound migration from inbound - confirm what we have seen in other statistical products, namely that the Wyoming economy has gradually become weaker in the past few years. The first indication of this is in the net flow data of tax returns and income:


Returns $m
2012  2,464  210.8
2013 -429  201.2
2014 -1,052  67.2
2015 -278  220.6
2016 -1,920  107.4

The reversal of the flow of tax returns illustrates a reversal of the flow of families across our state line. A net gain of tax filers in 2012 (the first year in the available database) turned into a stream of net losses. 

On the income side, we are still attracting more money than is going out of the state. Broken down per return on the outbound and inbound side, respectively, the numbers look like this: 


Per-return income
Out In
2012     $45,201     $51,010
2013 $55,386 $70,865
2014 $50,253 $59,562
2015 $56,179 $80,899
2016 $54,822 $73,668


The difference between income per migrating tax return has increased, from 13 percent in 2012 to 34 percent in 2016. What does this mean?

As I mentioned on Saturday, when we only looked at 2016 data, a net outbound migration of tax returns with a net flow of income in the opposite direction suggests that the migration flows are qualitatively different. Inbound migration consists of high-income and wealthy tax filers, still coming to Wyoming for the absence of income, wealth and death taxes. 

Outbound migration, by contrast, bringing with it less money, consists of middle-class families and small businesses leaving our state. This means that local communities around the state are losing workforce and local purchasing power, neither of which will be compensated for by inbound migration. Wealthy people are not going to buy homes in Newcastle, Casper or Rawlins; they will continue to cluster in Teton County.

A look at the top states for inbound and outbound migration confirms the conclusion as to the nature of respective migration flow.

In 2012, the largest income flows came from Florida, Colorado, California, Kansas and Montana. Broken down on a per-return basis, the pattern looks a bit different: Kansas tops, with a per-return income inflow of $375,000; NewJersey was second ($185,000) with Vermont ($133,000), D.C. ($122,000) and California ($72,000) close behind. 

On the outbound side, the largest income flows went to Colorado, Florida, Texas, Utah and Montana. Per-income numbers are interesting, both because they are smaller than the per-return inflows and because of the states people chose to move to: Illinois ($111,000), Louisiana ($78,000), West Virginia ($65,000), Pennsylvania ($63,000) and Nevada ($61,000). 

Fast forward now to 2016, the fourth year with a net loss of taxpayers. On the inbound side, we attracted the largest income flows from Colorado, California, Texas, New York and Illinois. On a per-return basis: Connecticut ($401,000), New York ($329,000), Illinois ($250,000), New Jersey ($235,000) and Maryland ($115,000).  

Outbound flows went first and foremost to Colorado, Texas, California, Utah and Montana. Per return, the winners are West Virginia (!) ($235,000), Massachusetts ($82,000), California ($79,000), Kentucky ($75,000) and North Dakota ($69,000). 

Again, when we break down migration numbers by state, we see the pattern of larger per-return migration inbound than outbound. 

As time permits, I will run these migration-data numbers against taxes, GDP growth and personal income. I will also take a closer look at Illinois: it seems as though we lost income to that state before their legislature placed a tax noose around the economy and slowly began pulling the rope. Once the higher taxes took effect, it looks like people came migrating back here. But, again, more on that later.

For now, let us sum up what we have learned so far:

1. People still move to Wyoming because it is a low-tax state for wealthy individuals;
2. People leave Wyoming because it is not a low-tax state for middle class families, and because there are better opportunities in other states;
3. The net outflow of taxpayers has been consistent for four years, suggesting that we need proactive policies on regulations, government spending and taxes to keep small businesses, workers and families with regular incomes in our state. 

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