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Report: Iowans flee to states with lower taxes

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(The Center Square) – Iowa lost taxpayers to other states with generally better tax systems, according to a report released this week.

The latest Internal Revenue Service and Census data, which reflects location changes that occurred between tax returns filed in 2020 and 2021, show a strong correlation between states with lower taxes and an influx of new residents, according to a report published by the Tax Foundation, an independent tax policy nonprofit.

Conversely, states with generally higher taxes experienced higher losses.

Iowa lost $259,644,000 worth of adjusted gross income with 1,188 residents choosing to leave the state, the report found.

Overall, Iowa experienced a -0.04% change in its population attributable to interstate migration from 2020 to 2021, according to the report.

Residents tended to flee states that had generally higher local tax collections.

“Of the 26 states that saw a net gain in income tax filers due to interstate migration, 20 had below-median state and local tax collections per capita in fiscal year 2020, while 19 of 24 states that experienced net outbound migration had above-median collections per capita,” the report said.

During this same time, Iowa performed poorly for its tax structure in the Tax Foundation’s State Business Tax Climate Index, ranking 40th in the nation. It received low marks, especially for its corporate tax, individual income tax, and unemployment insurance tax.

However, Iowa has changed its tax code since then, reducing the state and corporate income tax and making its way toward a flat income tax rate by 2026.

It’s a move toward what top-performing states in the report already do.

Four of the top states that received the newest residents from interstate migration between 2020 and 2021 do not levy individual income taxes at all, and eight of the top 10 either forgo the individual income tax, have a flat income tax or are moving to a flat income tax, the report found.

In total, 26 states gained income tax filers from interstate migration while 24 states lost income tax filers.

The top winners of interstate migration were Florida, with 128,228 new tax filers; Texas, with a gain of 82,842, and North Carolina with 40,828.

States hit with the most severe losses were California, which lost 158,220 tax filers, New York, with a loss of 142,109, and Illinois with a loss of 53,910, according to the report.

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