A Sense of Deja Vu in IRS Migration Data

The tax year 2022 update of IRS Statistics of Income data on state migration is now out generating news reports, blog posts, and commentary.  We would be remiss if we didn’t offer our own two cents on the data and what we think about it.   (If you are short on time, it’s pretty much the same as last year)

A refresher on the source is worthwhile.  IRS Statistics of Income data on state migration are based on year-to-year address changes reported on individual income tax returns filed with the IRS.  Tax returns are matched for two consecutive calendar years based on the filer’s taxpayer identification thus capturing both inflows (the number of new residents who moved to a state and where they migrated from) and outflows (the number of residents leaving a state and where they went.) Return data from migration within a state and “non-migrants” is also reported.   The “$200,000 and above” income threshold is the highest threshold reported.

While that may appear straightforward, some important caveats and limitations deserve recognition.  To summarize: different permutations of exactly when people move, when they file, how they file, if they file, filing extensions, and filing status changes between years can have an influence on these reported migration totals. 

This table presents the Minnesota summary picture.  The state had over 8,000 fewer income tax filers due to net state out-migration in 2022 (although the total number of Minnesota individual income tax returns increased by almost 64,000 from tax year 2021 to tax year 2022).   Over half of the total net outmigration came from adjusted gross incomes of over $100,000.  Every Minnesota age cohort experienced a loss of tax filers due to net migration.

However, these totals capture absolute rather than relative changes and therefore offer little in the way of a frame of reference or perspective on the magnitude and significance of what this net migration represents.   We again revised this state migration measure by calculating net migration totals as a percentage of total number of filers in the $100k - $200k and $200k+ cohorts in each state (where the majority of -- and arguably most “policy-significant”-- net outmigration exists).  We also again calculated separate relative rankings for both state in-migration and out-migration to highlight the relative influence of the migration direction in deriving the “net” total. 

 The results are familiar.  Looking at the highest income cohort ($200,000 of AGI and above):

• 2.42% of the state’s total base of $200,000 and above income tax filers left the state during tax year 2022.  That relative departure share puts Minnesota 42nd in the nation, (even lower than Florida’s 2.57%) indicating a 20% better relative retention of these filers in TY 2022 than the 50- state average.
   
• In stark contrast, only 1.54% of state’s base of $200,000 and above filers came to the state during tax year 2022.  That relative incoming share places Minnesota 49th in the nation, less than half of the 50-state average.  Only California ranked lower.

For $100,000 – under $200,000 filers, same story:

• 1.91% of the state’s base of $100k-$200k filers left the state during tax year 2022.  That relative departure share puts Minnesota 45th in the nation indicating a relative retention of these filers that is 69% better in TY 2022 than the 50-states average.
   
• However, only1.36% of state’s base of $100k-$200k filers migrated into the state during tax year 2022.  That relative incoming share places Minnesota 50th -- dead last -- in the nation, less than half of the 50-state average. 

What’s notable about this finding is that $100k- $200k filers are the largest income cohort covering the prime workforce ages of 26 to 64.

Things don’t improve much comparing in-migration levels relative to the total number of filers in the state.  In-migration of $100k-$200k filers in tax year 2022 represented 0.28% of total Minnesota income tax filers, 45th in the nation, half the 50-state average share. In-migration of $200k and above filers represented 0.13% of all Minnesota income tax filers, 40th in the nation, also half the 50-state average share.

Once again, we find Minnesota does a respectable of keeping these higher income filers in the state compared to most other states.  However, this is starting to look as much or more like a “Midwest deep cultural roots” phenomenon than anything else.  At the $200k+ level, all of our border states as well as Michigan and Nebraska do even better on this retention measure than Minnesota.  It’s also worth observing these results do not capture the income tax increases enacted in 2023 and their major redistributional effects.  Future IRS migration releases may give us an indication of just how deep these roots run here.

On the other hand, our relative ability to attract these middle to high income filers to the state appears abysmal. And as we have argued before in-migration demands as much or more attention since it reflects the intersection of capital mobility, workforce availability, and business decision making.    Attracting talent to the state, whether it be experienced professionals or newly educated workers who will be their eventual successors, is a cornerstone of continued economic success.   Getting them here continues to appear a greater challenge than keeping them here.