New Hampshire’s Lack of Income Tax Good for In-Migration

A new study by Antony Davies and John Pulito, from the Mercatus Center, find that tax rates do influence the migration of people across state and county lines (pdf). They found that:

This paper explores the relationship between high-income tax rates and the interstate migration of high-income households. Controlling for property-tax rates, sales-tax rates, high-income tax brackets, unemployment, and state/county specific and time-specific effects, we find that higher state income-tax rates cause a net out-migration not only of higher-income residents, but of residents in general. We also find that changes in the income levels to which the tax rates apply similarly affect out-migration. For county-level data, we find that high-income households react to a lowering of income levels to which higher tax rates apply in the same way that they react to increases in the tax rates themselves. This behavior suggests that the tendency to lower the threshold for “high income” or “millionaire” households to capture households and flee to more tax-friendly environs. Finally, for state-level data, we find that the effect of property taxes on migration is significantly stronger than the effect of high-income tax rates on migration. For example, a one percentage point increase in the property-tax differential between two states has almost three times the effect on migration as does a one percentage point increase in the difference in high-income tax rates. All of these data suggest a recipe for population depletion. States lose households to more tax-friendly states by (1) lowering the “high-income” threshold so as to capture more households, (2) increasing high-income tax rates, and (3) increasing property-tax rates.

So New Hampshire’s lack of income tax is a significant driver of the influx of migrants into the state in the past few decades. However, the study indicates that New Hampshire’s relatively high property tax burden may be offsetting some of the benefits of not having an income tax.

However, the study does not examine the migration effects on states with no income tax (or no sales tax), so it is impossible to say exactly how much of the net benefit is eroded by the property tax. Also, a high state-wide average property tax burden does not, obviously, mean that all towns have a high property tax burden. In fact, there are some towns in New Hampshire that are America’s last remaining “Tax Havens” with extremely low or no local property taxes.

How New Hampshire Poaches Massachusetts Businesses

A fascinating account in today’s Boston Globe about how New Hampshire poaches Massachusetts businesses:

New Hampshire pays Michael Bergeron to be a full-time thief, sending him across the border in an unmarked black sedan to poach Massachusetts companies.

To help keep his missions undercover, the business recruiter even scraped the New Hampshire state seal off his Ford Fusion. Equal parts real estate agent, financial adviser, and deal fixer, Bergeron has lured dozens of Massachusetts companies to the Granite State over the past few years with promises of lower tax bills, cheaper office and industrial space, and fewer regulations.

John Hancock Financial and Liberty Mutual Group are among the high-profile firms that recently moved significant parts of their operations over the state line – partially because of Bergeron’s pitches. And an increasing number of small and midsize firms are considering migrating as a way to reduce costs in uncertain economic times.

“New Hampshire has become an easier place to do business as Massachusetts has become more difficult,’’ said Bergeron, who works as a business development manager for the New Hampshire Department of Resources and Economic Development. “It’s a lower cost to do business here and you still have the availability of the skilled workforce in Massachusetts.’’

His PowerPoint presentations highlight what New Hampshire officials say is Massachusetts’ bad-business reputation. They cite expensive real estate, drawn-out permitting processes, and higher taxes.

There are no official statistics from Massachusetts or New Hampshire on the number of companies that have moved north. But Bergeron estimates that at least 5,000 new jobs have been created over the past five years as a result of Massachusetts businesses moving to his state.

Massachusetts officials and business leaders deny that a mass exodus is underway, although they acknowledge that New Hampshire’s aggressive recruitment tactics can’t be ignored.