Tax Competitiveness Drives Interstate Migration: A Deep Dive 9

The State Tax Competitiveness Index (STCI), a comprehensive measure of state tax systems, has consistently shown a strong correlation with interstate migration patterns. This article delves into the relationship between tax competitiveness and population movement, leveraging the latest data from the 2025 STCI and the American Community Survey (ACS).

Understanding the STCI

The STCI assesses the structure and competitiveness of state tax codes. While it doesn’t directly measure quality of life or economic growth, it provides valuable insights into a state’s attractiveness to residents and businesses.

Tax Competitiveness and Migration: A Closer Look

Recent years have witnessed a clear trend: states with more competitive tax codes have experienced net population gains.

• Top 10 States: States ranked in the top 10 of the 2022-2024 STCI gained an average of 147,900 residents between 2021 and 2023. This is largely driven by states like Florida, Texas, and Tennessee.
• Bottom 10 States: Conversely, states in the bottom 10 lost an average of 213,000 residents during the same period. California, New York, and New Jersey were among the biggest losers.

The Pandemic Effect

The pandemic further accentuated the impact of tax competitiveness on migration. Eight of the top 10 states on the STCI experienced positive net migration between 2021 and 2023. This suggests that individuals and businesses are increasingly prioritizing tax-friendly environments.

Implications for State Policymakers

While a competitive tax code isn’t a guaranteed solution for population growth, it’s a crucial factor. States aiming to attract residents and businesses should prioritize:

• Tax Simplification: Reducing complexity and uncertainty in the tax code.
• Lower Tax Rates: Lowering overall tax burdens.
• Broader Tax Bases: Expanding the tax base to generate revenue without excessive reliance on specific sectors.

By implementing these strategies, states can improve their tax competitiveness and position themselves for long-term growth and prosperity.