Recently, we published our updated and rebranded State Tax Competitiveness Index (STCI), which measures how well states’ taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. systems are structured and how competitive their tax rates and bases are compared to other US states. The Index does not measure the standard of living in a given state or its economic growth prospects per se. Yet, an interesting empirical question arises: does tax competitiveness impact various demographic and socioeconomic outcomes? An existing body of literature already associates competitive taxation with economic growth, but we hope academic researchers and policy experts will use data from our updated Index to further investigate this issue.
This blog post examines the relationship between tax competitiveness and interstate migration patterns. In several of our annual updates (most recently here), we observed a strong positive relationship between states with well-structured tax codes and those experiencing net inbound migration. For this analysis, we use backcast data from the 2025 Index and the most recent data on state-to-state migration flows from the American Community Survey (ACS) one-year estimates to explore this relationship in greater detail.
To mitigate the effects of annual fluctuations, we use ACS migration data from the three most recent years (2021–2023) and match them with our 2022–2024 STCI ranks. For example, the 2024 Index uses input variables as of July 1, 2023, which marks the beginning of the 2024 fiscal year in most states. Thus, the 2024 Index effectively measures state tax competitiveness as of 2023. Our findings are also supported by an alternative source of data, IRS SOI, but since their migration data is only available through 2022, we prefer to use ACS data for this analysis.
States with more competitive tax codes, as shown in the figure below, have experienced positive net migration in recent years. Specifically, states in the top 10 of the Index (average 2022-2024 rank) saw an average influx of 147,900 residents between 2021 and 2023, equivalent to 1.9 percent of their 2021 population. This positive trend was primarily driven by Florida, Texas, and Tennessee, which gained 580,235; 451,665; and 135,754 individuals, respectively.
In contrast, states in the bottom 10 of the STCI lost an average of 213,000 residents over the same period, amounting to 2.4 percent of their 2021 population. The largest net losses were observed in California, New York, and New Jersey, which lost 1,017,581; 706,638; and 211,163 individuals, respectively.
States in the middle of the Index exhibited a similar pattern: the higher their tax competitiveness, the more positive (or less negative) their net migration. On average, states in the top half of the STCI gained approximately 85,000 residents, while states in the bottom half (including the District of Columbia) lost approximately 82,000 residents.
The correlation between tax competitiveness and net migration has been particularly strong since the pandemic (see the figure below). In fact, 8 of the top 10 states on the STCI experienced positive net migration between 2021 and 2023. Among the 25 states in the top half of the Index, 22 saw positive net migration during the same period. In contrast, 7 of the bottom 10 states and 13 of the bottom 25 states on the STCI experienced negative net migration from 2021 to 2023.
Improving a state’s tax competitiveness—and consequently its position on the Index—does not automatically result in increased net migration. However, recent data suggest that tax competitiveness plays a significant role in residents’ relocation decisions. A well-structured tax code can be considered a prerequisite for making a state more attractive to both individuals and businesses. We encourage state policymakers to use the Index as an analytical tool to assess the competitiveness of their state’s tax code relative to its neighbors and economic competitors and consider making certain adjustments to simplify their tax structure and make it more neutral and stable.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.
Subscribe