It turns out Americans really do vote with their feet – especially when it comes to taxes.
United Van Lines releases a report every year on the prior year’s migration patterns within the U.S. They just put out the 2016 report, and the data is fascinating.
By sheer coincidence, Attom Data Solutions just released a report on property taxes across the country. Sure enough, the lists have plenty in common.
But property taxes aren’t the whole picture when it comes to residents’ tax burden. And how do migration patterns and tax burdens align with real estate appreciation? What does the data indicate about opportunities for real estate investors?
Glad you asked.
Tax Burden – The Trifecta
Property taxes matter, especially to real estate investors, but for residents they make up only one of three variable taxes: property tax, income tax, and sales tax. (We’ll dive into property taxes in more depth later, fear not!)
Last week, WalletHub compiled all three tax types into a chart outlining tax burden for each state. They broke down each of the three tax types as a percentage of income in that state.
Here are the top ten highest-tax states:
| Overall Rank | State | Total Tax Burden (%) |
Property Tax Burden (%) |
Individual Income Tax Burden (%) |
Total Sales & Excise Tax Burden (%) |
| 1 | New York | 12.94% | 4.55% | 4.76% | 3.63% |
| 2 | Hawaii | 11.27% | 2.11% | 2.64% | 6.52% |
| 3 | Vermont | 10.75% | 4.96% | 2.29% | 3.50% |
| 4 | Maine | 10.73% | 4.65% | 2.58% | 3.50% |
| 5 | Minnesota | 10.24% | 2.87% | 3.59% | 3.78% |
| 6 | Connecticut | 10.23% | 4.16% | 3.24% | 2.83% |
| 7 | New Jersey | 10.14% | 5.31% | 2.32% | 2.51% |
| 8 | Rhode Island | 10.09% | 4.80% | 2.15% | 3.14% |
| 9 | Illinois | 10.00% | 4.14% | 2.66% | 3.20% |
| 10 | California | 9.52% | 2.72% | 3.44% | 3.36% |
And the lowest-tax states:
| Overall Rank | State | Total Tax Burden (%) |
Property Tax Burden (%) |
Individual Income Tax Burden (%) |
Total Sales & Excise Tax Burden (%) |
| 41 | Montana | 7.51% | 3.61% | 2.56% | 1.34% |
| 42 | Wyoming | 7.29% | 3.77% | 0.00% | 3.52% |
| 43 | Alabama | 7.19% | 1.41% | 1.85% | 3.93% |
| 44 | South Dakota | 7.12% | 2.83% | 0.00% | 4.29% |
| 45 | Florida | 6.79% | 2.76% | 0.00% | 4.03% |
| 46 | New Hampshire | 6.70% | 5.33% | 0.13% | 1.24% |
| 47 | Oklahoma | 6.61% | 1.38% | 1.69% | 3.54% |
| 48 | Tennessee | 6.45% | 2.06% | 0.09% | 4.30% |
| 49 | Alaska | 6.27% | 4.84% | 0.00% | 1.43% |
| 50 | Delaware | 5.59% | 1.83% | 2.59% | 1.17% |
That’s a big difference in tax burden; the tax burden in New York is nearly two-and-a-half times that of Delaware.
So now that we have a better grasp of which states are high-tax and which are lower-tax, let’s look at which states Americans are leaving, and where they’re moving instead.
Migration Patterns: Where Americans Are Moving
Continuing a long-term trend, Americans are largely moving away from the Northeast and Midwest, to move south and west.
Surprising no one, these tend to be the higher-tax states.
Take a look at the map:
Look familiar?
It’s not a perfect match with the tax burden map, of course. Look at Vermont – high taxes, cold winters, but people are flocking there in droves (whatever a “drove” is). Although even I have to admit that the people in Vermont are friendly, the beer is excellent, and the hiking and skiing are great.
(article continues below)
Free Video Training: Passive Income from Rentals
So what happens if we cross reference the top inbound migration states with their tax rank, and do likewise with the top outbound migration states?
| Top Outbound Migration States | Tax Rank (higher rank indicates higher taxes) | Top Inbound Migration States | Tax Rank (higher rank indicates higher taxes) | |
| 1. New Jersey | 7 | 1. South Dakota | 44 | |
| 2. Illinois | 9 | 2. Vermont | 3 | |
| 3. New York | 1 | 3. Oregon | 27 | |
| 4. Connecticut | 6 | 4. Idaho | 39 | |
| 5. Kansas | 20 | 5. South Carolina | 37 | |
| 6. Kentucky | 22 | 6. Washington | 33 | |
| 7. West Virginia | 14 | 7. District of Columbia | N/A | |
| 8. Ohio | 13 | 8. North Carolina | 28 | |
| 9. Utah | 25 | 9. Nevada | 30 | |
| 10. Pennsylvania | 24 | 10. Arizona | 31 |
The numbers don’t lie. The average tax burden rank for the outbound migration states is a high-tax rank of 14.1, while the average tax burden for the inbound migration states is a relatively low-tax rank of 30.2.
You may have also noticed that all of the ten outbound states are in the top half of states with high tax burdens. The top four outbound migration states are particularly telling, all within the top ten highest tax states.
Americans are moving out of high-tax states, and moving into lower-tax states.
Circling Back: Property Taxes
Americans paid nearly $300 billion (that’s $300,000,000,000!) in property taxes last year.
Property taxes are particularly relevant to real estate investors, given their direct impact on cash flow. What’s tricky about property taxes is that they vary by county, not by state. So while we can look at state averages, like WalletHub did, the data has its limits.
But even when we drill down to the local level, the property tax map tells a familiar tale:
Look at all that orange in the Northeast and Midwest! Like Halloween all year round, terrorizing residents’ budgets.
It’s worth noting that Texas, with its high property taxes, actually has a relatively low total tax burden, because it imposes no income tax. That’s one reason why it’s not suffering from outbound migration like most of the other regions with high property taxes.
United Van Lines noted in their report that while many Americans are moving into cities, that trend is still heavily overshadowed by the trend away from the Northeast and Midwest.
Real Estate Recovery Post-Recession
It’s not exactly rocket science; the states with the most inbound population growth have experienced a faster recovery.
| Top Inbound States | 5-Year Home Price Change (Attom Data) | Top Outbound States | 5-Year Home Price Change (Attom Data) | |
| South Dakota | N/A | New Jersey | 5.10% | |
| Vermont | 2.60% | Illinois | 27.60% | |
| Oregon | 54.20% | New York | 0.60% | |
| Idaho | 65.80% | Connecticut | 1.30% | |
| South Carolina | 32.70% | Kansas | 23.20% | |
| Washington | 43.30% | Kentucky | 41.90% |
The average home value in the top destination states appreciated by 39.7% over the last five years. In the top outbound states? Homes only appreciated an average of 16.6%.
It’s worth noting the major outliers on each list. Vermont’s homes only appreciated by 2.6% over the last five years, which is a heck of a coincidence, considering it’s also the only high-tax state among the top inbound states. Similarly, the outbound state with the strongest appreciation, Kentucky with 41.9%, ranks lower on tax burden than the other states on the outbound list.
Opportunities for Investors?
Inbound migration means population growth, which is the greatest single predictor of real estate appreciation. Investors always want to keep an eye on what markets are growing quickly, because those markets usually experience demand growth that outpaces new housing supply.
Tax burdens also matter for investors, and not only because of their strong correlation with migration patterns. Lower property taxes are particularly relevant to real estate investors, because of their direct impact on cash flow.
Don’t think property tax bills make much of a difference to your cash flow? Consider that the average annual property tax bill in Alabama last year was $776. Compare that to the average property tax bill in New Jersey: $8,477. The monthly cost of that tax bill is almost as high as the annual tax bill in Alabama!
Low-tax, high-migration states, cities and towns are a gold mine for real estate investors. You don’t need to invest in your own backyard if you’re an experienced investor, although in our passive income course we always caution newer investors to start within an hour of home.
Tax burdens don’t tell the whole story; after all, California has relatively high tax rates but it’s hard to argue with the weather in San Diego. But there’s a clear correlation between tax burdens and Americans’ moving patterns. If you want to invest where demand is sure to grow, look at states where taxes are low and movers are inbound, rather than fleeing.
What are your thoughts on the above data? Would you consider moving to a lower-tax state?
More Titillating Reads:
Passive Income & Personal Finance
Wow! Fascinating data. Makes total sense. Makes me wonder why I’m paying so dang much in state and local taxes!
I hear ya Chelsea. For many years I blew way too much of my income on high state and local taxes as well. A difference of 5% of your income is thousands upon thousands of dollars a year! Money that can be invested elsewhere.
Yes, I live in an area where the taxes are ridiculous and climbing higher. Services are becoming less BUT they are building an unnecessary monstrous new school when there is absolutely nothing wrong with the existing. Makes me furious every time I pass by it!
I don’t mean to take it to a super political place, but this is about as close to a real-world validation as possible, for how higher taxes are harmful to an economy.
States with better fiscal responsibility, leaner budgets and lower taxes are now reaping the benefits of their discipline from 5, 10, 20 years ago. It’s no fun to be on a lean budget while your neighbor is spending spending spending, but it pays off in the long term.
Fiscal responsibility is definitely a long-term payoff, which is probably why most elected politicians only pay lip service to it, since they’re operating in the short-term. But it definitely goes to show you how lean, accountable state budgets can pay dividends.
Seriously, amen to that!
Very, very cool article. Thanks for putting this together, absolutely fascinating
Thanks Patrick! We’ll keep writing if you keep reading. Deal?
Thank you Patrick. Brian definitely sheds light on some great topics. That is our aim! Feel free to let us know if there is an particular subject matter you would like to learn more about.
Great post guys, thanks for putting all this together. Everyone in our area is talking about a large influx of residents into the Nashville area, but I was interested to not necessarily see this reflected too much in the actual data … it’s more of a balanced in/out flow it looks like … at least on a state-wide basis. You’ve piqued my curiosity, and it could be interesting to dive a bit deeper and see in/out flows for major metropolitan areas, not just states. Any ideas on sources for that type of data? TN has reasonable property taxes and no individual state income tax, and that along with well-paying jobs in the healthcare industry here in Nashville would seem a boon to real estate values locally, but I would be curious to know if migration patterns actually confirm that.
Hi Josiah, I don’t have Nashville-specific data, but the UVL report did also acknowledge a trend of movement toward metropolitan areas, and away from rural areas. I would suspect that disproportionate amount of the migration into Tennessee is toward Nashville, along with much of the intra-state moves.