Specifically, the state lost $944 million in adjusted gross income reported by tax filers who moved in and out of Minnesota. This is the largest net loss of income ever reported for Minnesota, and it represents a dramatic rise from just three years ago when the state lost $490 million.
Where are Minnesota households and income moving? With only a few exceptions, Minnesota is losing income to lower tax states to the West and the South, such as Arizona, Colorado, Florida, South Dakota, Texas and Washington. Minnesota tends to gain income from higher tax states in the Midwest and Northeast.
“This unprecedented loss in income demonstrates Minnesota is becoming a less attractive place to live and work,” said Peter Nelson, the report’s author and Center of the American Experiment Vice President and Senior Policy Fellow. “The implications for Minnesota tax policy are clear: Lowering taxes will help Minnesota retain and attract workers.”
The new IRS data for the first time provide annual information on who is moving from state to state based on age and income. These new data refute a long-held assumption that income loss is primarily due to retirement.
In fact, people in their prime working years represent a large portion of the net loss of taxpayers and income. Working-age people between 35 and 54 account for nearly 40 percent of Minnesota’s net loss of tax filers for the 2013-14 period. People between the ages of 55 and 64—most of whom are still in the workforce—account for another 23 percent.
Minnesota is losing top earning taxpayers and their income at an alarming rate. The state’s rate of income loss from people earning above $200,000 ranks 47th, ahead of only New Jersey, Illinois, Vermont and the District of Columbia.
“These are the taxpayers who are directly impacted by the 2013 tax increases,” Nelson said.
Taken together, these IRS income migration data clearly signal the need for Minnesota to reduce taxes if the state is to have any hope of being competitive among the states, and in a global economy.