There’s an adage that whatever you tax more, you get less of. Michigan is learning this lesson the hard way as strong income earners flee the state.

The financial information website SmartAsset last week published the results of its 2024 study, “Where High-Earning Households Are Moving.” Spoiler alert: they’re not moving to Michigan.

Based on IRS data, high-income households are leaving Michigan at the 12th highest rate in the nation. This trend raises red flags regarding both the state's economic climate and its tax policies.

A closer look at the list highlights something the Mackinac Center has pointed out repeatedly: Tax rates and structure matter a lot to where people want to live and work. Of the states gaining the most high-income households, almost all have either lower rates than Michigan or no income tax at all. As the Whitmer administration and the Michigan Supreme Court are raising Michigan's income tax rate, states with lower rates or no state income tax at all are becoming increasingly attractive.

The Mackinac Center’s recent summer Policy Forum series, “How to Get Michigan Growing Again,” brought in national experts to identify the states that are eating Michigan’s lunch and the policies they’re pursuing to do it. Among Michigan’s competitor states, only Ohio is losing high-income households more rapidly than we are, and all others but Indiana are gaining such households.

Florida and Texas, the two largest and most prominent states with no income tax, have become magnets for high-income earners. Their lack of a state income tax means that individuals can keep a larger share of their earnings, making these states particularly appealing for high-income individuals. States like Nevada and Wyoming, which also don't have a state income tax, have seen an influx of high-income residents. Importantly, even states with lower income tax rates than Michigan, such as Indiana, which has a flat rate of 3.23%, or North Carolina, which will undercut Michigan’s 4.25% rate by 2026, are experiencing growth in high-income households.

This trend's implications are plentiful. Households with high income contribute a significant amount to state revenues by way of a few different taxes. High-income households pay a lot of income tax, plus a lot of property tax, and they tend to pay a lot of sales tax because they spend more. And when high-income people leave a state, it does not just affect the immediate situation; it has a long-term effect on the public service infrastructure, philanthropic environment, and overall economic vitality of the state.

Michigan politicians should see and understand this as a warning sign. State leaders need to understand that tax policy is connected to economic growth and make policies that attract the kinds of people who can pay taxes and help fund the state’s future.

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