Budget & Tax
How money walks: Washington
December 19, 2018
Trent England, Curtis Shelton
is a project that tracks the migration of income between all 50 states. Using IRS data, How Money Walks shows how states have gained or lost wealth between 1992 and 2016. These data provide evidence about the effects of tax policy on where people choose to live.
Washington state is the outlier among the nine states with no income tax. Most of the others are “red states,” like Texas and Florida. Two—Nevada and New Hampshire—could be considered “purple.” But Washington is the lone liberal state in the bunch. This makes it a unique battleground for tax policy and an example of how the inability to tax income acts as a limit on government.
Washington state enjoyed $19 billion of annual adjusted gross income moving into the state from 1992 to 2016. It gained the most wealth from California, which has the highest income tax rate in the country. California has lost—on net—$58.63 billion in annual adjusted gross income from wealth migration—$7.32 billion to Washington alone.
Washington differs from the first two states we looked at,
Even without an income tax, Washington has a higher tax burden than Oklahoma by about half a percentage point. The Evergreen State has higher
|Net Wealth Migration (1992-2016)||Gain of $18.78 billion||Loss of $1.22 billion|
|Income Tax Rate||0%||5%|
|State Business Tax Climate Index Ranking||20th||26th|
|Rich States, Poor States Ranking||37th||16th|
|State and Local Tax Per Capita||$4,261||$3,060|
|Tax Burden as a Percentage of Income||9.29%||8.73%|
Why does Washington state remain highly competitive even with a higher overall tax burden? Why is a state with weather that causes
Not all taxes are created equal. An income tax is, quite literally, a penalty on work. One of the silliest phrases in tax debates is “sin tax,” which is used to specify those taxes intended to reduce a certain behavior while implying that other taxes have no such effect. On the margin, there is no question that gas taxes reduce driving, sales taxes reduce sales, property taxes reduce real estate investment, and income taxes reduce income earning—or convince people to move elsewhere.