Low-Tax Wisconsin Losing More Income Tax Filers than Minnesota

In recent years, there has been a small net migration of income tax filers from Minnesota to other states. Conservative think tanks have argued that this net export of tax filers from the state is due to Minnesota’s tax climate—a claim debunked in a previous North Star article. A comparison of Minnesota to relatively low-tax Wisconsin provides further proof that the net migration of filers is not significantly driven by taxes.

Internal Revenue Service “Statistics of Income” (SOI) track the number of income tax filers that enter and exit a state from year to year. (As used here, the term “tax filer” refers to a person who files a federal income tax return.) The most current data covers this “inflow” and “outflow” of tax filers and the number of exemptions claimed (i.e., the tax filer plus dependents claimed on the tax return—representing the number of people in the tax filing household) from 2014 to 2015. The impact of income tax increases enacted in Minnesota in 2013 and income tax reductions enacted in Wisconsin in 2014 are reflected in this data.

A comparison of SOI tax filer migration data for Minnesota and Wisconsin allows us to examine the premise advanced by conservatives that Minnesota’s net filer out-migration is the result of higher taxes in the Gopher State.* Due to the fact that the two states are neighbors with similar weather climates, net migration from each state for weather-related reasons should be similar. Thus, if the conservative premise that Minnesota’s net loss of tax filers is driven by higher taxes is correct, the net loss of tax filers from Minnesota should be greater than Wisconsin’s.

Before examining the aggregate tax filer migration to and from Minnesota and Wisconsin, it is useful to compare migration data between the two states. Of the tax filers that moved from Wisconsin from 2014 to 2015, more went to Minnesota than to any other single state. The inverse of this statement is also true: of the tax filers that moved from Minnesota, more went to Wisconsin than to any other single state. Over this period, however, considerably more tax filers moved from Wisconsin to Minnesota than vice versa.


From 2014 to 2015, Minnesota gained a net of over 900 tax filers from Wisconsin. (In other words, the number of tax filers that moved from Wisconsin to Minnesota exceeded the number that went the opposite direction by over 900.) In terms of the number of exemptions claimed on these returns, Minnesota was a net gainer of nearly 800 at the expense of Wisconsin. The net migration of tax filers from lower-tax Wisconsin to higher-tax Minnesota flies in the face of the conservative assertion that such migration is driven primarily by the level of taxes.

Like all other Great Lakes states, Minnesota and Wisconsin experienced a net loss of tax filers to other states and nations from 2014 to 2015; in other words, more tax filers left these states than moved into them. While both Minnesota and Wisconsin experienced a net loss over this period, Wisconsin’s net loss was considerably greater than Minnesota’s.

From 2014 to 2015, Wisconsin experienced a net loss of tax filers to other states and nations of 5,700—59 percent greater than Minnesota’s net loss of 3,577. In terms of the number of exemptions claimed on these returns, Wisconsin underwent a net loss of 7,542—47 percent greater than Minnesota’s 5,131 loss. Once again, low-tax Wisconsin was losing more tax filers and more exemptions than Minnesota.

While the net out-migration represents a tiny share of the total tax filers and total exemptions in both states, this share is considerably smaller in Minnesota than in Wisconsin. Minnesota’s net out-migration represents 0.16 percent of all tax filers and 0.11 percent of all exemptions, compared to 0.24 percent of all tax filers and 0.15 percent of all exemptions in Wisconsin.

Excluding adjacent states, the largest recipients of the outflow of tax filers from Minnesota and Wisconsin from 2014 to 2015 were four states: Arizona, California, Florida, and Texas. State and local taxes in California were above the national average, both on a per capita basis and as a percent of personal income; in the remaining three states, state and local taxes were below the national average. One thing that all four of these states have in common is that each is considerably warmer than both Minnesota and Wisconsin. Once again, Wisconsin’s net loss of tax filers and exemptions to these four states was greater than Minnesota’s.

The SOI data set also includes information on the adjusted gross income (AGI) reported on returns that migrate to and from each state. Some analysts have incorrectly used this AGI data is an indicator of “income migration”—an interpretation that represents “an egregiously wrong use of the data,” for reasons noted in a July 2016 North Star article. However, if we accept the interpretation of some Minnesota conservatives that the AGI reported on returns that migrate to or from a state represents a migration of income, Wisconsin was a larger net loser of income to other states and nations than was Minnesota from 2014 to 2015.

It is clear that more tax filers are moving out of Minnesota than moving into Minnesota. This trend, however, is common to all Great Lakes states and almost certainly has more to do with demographics and climate than taxes. For example, among the ten states receiving the largest alleged “net migration” of Minnesota income, 82 percent of the income went to states with an average January temperature of 40 degrees or above, compared to 8 degrees in Minnesota.† Furthermore, based on 2014 to 2015 SOI data, Minnesota lost a net of nearly 1,300 tax filers to balmy Florida, while it experienced virtually no net loss to frigid South Dakota,‡ even though—by some measures—South Dakota has lower state and local taxes than Florida. The appeal of warm weather states is likely to continue as more baby boomers retire.

If the trend in tax filer migration was indeed driven to a significant extent by high taxes, relatively low tax states such as Wisconsin should be experiencing much less net out-migration than Minnesota. In fact, the opposite is true; Wisconsin is not only losing tax filers to Minnesota, but it is also experiencing a significantly larger net loss to other states and nations than Minnesota. This is yet one more nail in the coffin of the right wing claim that taxes are driving significant numbers of taxpayers out of Minnesota.

A recent North Star article posited that Minnesota’s greater public investment in education and other public assets—made possible due to progressive tax increases—may have contributed to Minnesota’s superior economic performance relative to Wisconsin in recent years. Greater public investments in Minnesota—combined with disinvestments in Wisconsin made necessary by tax cuts and budget deficits—may help to explain why Wisconsin is losing significantly more tax filers than Minnesota. In Minnesota’s competition with other states to create jobs and retain taxpayers, the superior level of public goods and services made possible by the investment of tax dollars may in fact be an asset, not a liability.

 

*Based on the most current tax statistics reported by the Minnesota Department of Revenue, state and local taxes per capita and as a percent of personal income are higher in Minnesota than in Wisconsin.

This conclusion is based on an analysis of data presented in a 2016 report from the Center for the American Experiment entitled “Minnesotans on the Move to Lower Tax States 2016.”

If we accept the formulation that the income reported on the tax returns of filers moving to and from a state represents a “migration of income,” Minnesota was a net gainer of income from low-tax South Dakota from 2014 to 2015.