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High state tax rates encourage residents to move away ... or not

Do you like where you live? Did you choose your location because of its tax system? Would a change in how you're taxed at the state and/or local level be enough to make you call a moving company?

Moving_craftvision_iStock_000015472209XSmall2 Anti-tax politicians tend to argue that their jurisdictions need to keep taxes low or risk losing all their rich residents.

New Jersey Gov. Chris Christie is the latest lawmaker to sound off, or at least get a lot of attention, on this topic. The Garden State, in fact, opted to offer its richer residents some tax relief.

But are the relocation fears of Christie and other "don't scare off our wealthy residents with higher taxes" alarmists justified?

Yes. And no.

The mess of moving: Sure, some rich folks will clear out their mansions, hop in their private planes and head out to Texas or Florida or one of the other states with no state income tax.

But moving is such a pain.

Not only do you have to sell your current house, there also are all the annoying details -- the actual packing and moving process, finding and setting up a new home, making all those address change notifications, learning and complying with the confusing new local requirements.

And don't forget about the actual, bottom-line costs associated with moving (even when you're able to deduct most of them).

So such a major life change generally is not predicated solely on the taxes at your former or new location.

Taxes alone don't prompt calls to moving companies: Things like the wishes of your spouse and kids, extended family, friends, job possibilities, lifestyle offerings and climate tend to be much more influential in determining when and where you'll relocate.

Plus, every state is going to stick its hand in your wallet somehow. Trust me, Texas, where the hubby and I live now, and Florida, where we lived for six years, get their tax due via hefty property tax assessments.

We also lived for the longest period (so far) of our married life in Maryland, which has state and county income taxes.

Although that was a while back, I don't remember feeling like we were losing huge chunks of cash to the Old Line State's tax department. Maybe it was because we were young and not earning all that much, making our tax bills relatively small.

Still, we bought houses (sequentially!), cars, traveled, had professional hockey and baseball team season tickets and enjoyed other events in the national capital area. So obviously we weren't all that strapped by our state tax obligations.

We left the Maryland suburbs because of the hubby's job change. We left Florida because we decided it was time to head home to Texas; that and the 2004 out-of-control Atlantic hurricane season.

The point is, in each case we moved for reasons other than taxes. And while we're not rich, I suspect we're pretty typical when it comes to deciding where to call home.

Taxes and the relocation of the wealthy: That's also the assessment of NPR's Planet Money, which looked at just how much taxes affect a state's population growth or loss.

When the radio reporters asked the question "Do the rich flee high-tax states?" they found that the bigger economic answer is "No."

"Taxes [have] essentially no impact on causing people to leave a state," said one expert.

Basically, the rich who are facing higher taxes complain loudly, but most stay put.

And let's face it, the rich can hire some really good accountants to help them get around the new taxes.

You also might want to check out some studies (all open as PDFs) on the wealthy, where they choose to live and taxes:

  1. Boston College study cited by N.J. Gov. Christie
  2. How taxes influence migration patterns in New England
  3. How a New Jersey tax hike affected millionaires

The bottom line from the Planet Money piece and the studies is that higher taxes might cause a state to lose a few wealthy residents, usually in the form of rich folks who decide not to move there rather than current residents who leave.

But those states can use their higher taxes to offset that slight loss by funding programs that create jobs and amenities to attract more people of all income levels.

Photo by craftvision via iStock

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