IRS data: Red state income gains, low taxes, fewer regs are getting tough to pass up

The worst of the COVID-19 shutdown measures and George Floyd riots peaked less than three years ago. But the effects continue to rattle state governments.

Traditionally blue states are losing taxpaying residents and red states are welcoming them in. Democrat states looking at income and business tax shortfalls are raising taxes on businesses and individuals that stay, and cutting some of the services that make cities in particular worth doing business in.

Now IRS data shows just how flush with cash certain states really are and why they’re an attractive spot to start or relocate a business. IRS data for 2020 and 2021 shows state-to-state migration patterns.

The top 10 states in domestic wealth migration are:

1. Florida, $39.2 billion gain in adjusted gross income (AGI)
2. Texas, $10.9B
3. Nevada, $4.6B
4. North Carolina, $4.5B
5. Arizona, $4.4B
6. South Carolina, $4.2B
7. Tennessee, $4.1B
8. Idaho, $2.2B
9. Colorado, $2.1B
10. Utah, $1.6B

The list includes eight red states, a purplish one (Nevada) and a blue state (Colorado) led by a Democratic governor, Jay Polis, whose state budgets were hailed as “business-friendly.” Florida welcomed in a net influx of 256,000 taxpaying residents in 2020. Texas came in second with 175,000.

They’re leaving in droves. Can these states reverse course?

The top 10 losers measured in AGI are a different story based on IRS data for 2020:

1. California, $29.1 billion loss in AGI
2. New York, $24.5B
3. Illinois, $10.9B
4. Massachusetts, $4.3B
5. New Jersey, $3.8B
6. Ohio, $1.9B
7. Pennsylvania, $1.9B
8. Virginia, $1.9B
9. Maryland, $1.9B
10. Minnesota, $1.6B

California leads the way in regulations on businesses and is rarely out of the top 3 rankings for various taxes. New York and lllinois are a similar story. The Big Apple and Chicago are struggling mightily to fill vacant skyscrapers and put criminals in jail.

Only one state on the list (Ohio) is solidly red. Pennsylvania is a swing state that’s pulled the lever for Democrats in the most recent presidential, gubernatorial and senatorial elections. Virginia may be leaning purple but it’s historically a Democrat-run stronghold.

“The problem with chronic outflows … is that one year’s losses don’t only affect the tax base the year they leave, but they also hurt all subsequent years,” note Ted Dabrowski and John Klingner of WirePoints, a policy website that focuses on business in Illinois. “The losses pile up on top of each other, year after year … the numbers add up.”

The numbers appear easy to add up for the individuals and businesses fleeing high-tax, overregulated states in record numbers, as well.