Illinois’ Taxing Problem with Population Loss

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Illinois saw an out-migration of residents larger than any other state in 2017, dropping it from the 5th to the 6th most populous state in the nation according to estimates released Wednesday by the U.S. Census.  But the census numbers also give a indications of why that’s happening.

Specifically, ‘domestic migration’ figures reveal that many current U.S. residents are leaving high tax states like Illinois for low tax states.

The census reports that the states with highest domestic migration net losses in the past year are New York, (-190,508), California (-138,195), Illinois (-114,079) and New Jersey (-57,274), all considered among the highest taxing states in the U.S.

The states which had the biggest gains in net migration were Florida (+160,854), Texas (+79,163), North Carolina (+66,051), and the state of Washington (+64,579), low tax states in which three (FL, TX, WA) have no state income tax at all (By contrast, Illinois raised its state income tax in 2017 to 4.95%).

While states like California and New York saw overall population gains due to birth rates and international net migration, the loss of domestic migration can be especially damaging to a state’s economy because domestic residents typically pay more in taxes and are an important component to a state’s tax base.

The new tax bill which will soon be signed into law by President Trump could possibly make the trend even worse.  That’s because it caps deductions for mortgage interest and state and local taxes, providing even more incentives for higher-income taxpayers to move from higher tax states to lower tax ones.

High taxes aren’t the only reason people migrate.  Climate, job opportunities, and even family reasons can cause people to move, but it is clear that high taxes are likely a contributing factor for out-migration from Illinois and other high tax states.

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