Businesses flocking to states with lower taxes, better regulations

Experts on U.S. economic policy spend a lot of time looking at competition between states and how good tax and regulatory policy can help a state attract new residents and businesses. Recently author and columnist Amity Shlaes tweeted out a graphic on this topic showing which states have gained and lost the most businesses in recent years. The most successful states at attracting new enterprises are mostly (but not entirely) Republican governed and have lower overall tax burdens, while the states that have lost the most businesses are generally the opposite.

The top states for incoming business activity are Florida, North Carolina, Nevada, Texas, and Tennessee. Those losing the most are New York, California, Illinois, Maryland, and Pennsylvania. Of course, some people will call me on the fact that Nevada has, in recent presidential cycles, been a blue state and had a Democratic governor, Steve Sisolak, from 2019 to 2023. But one the biggest reasons that Nevada is on the list is that people are entering the Silver State because they are fleeing California, the even-bluer state next door.

The data underlying this measure of business migration comes from the U.S. Bureau of Labor Statistics and its Monthly Labor Review, specifically a recent report titled “Firm migrations in the United States: magnitude and trends.” The authors acknowledge that while there are many reasons for both individuals and firms to move across state lines, “…taxes and regulatory barriers and other business environments may lead businesses to explore opportunities in states with more favorable conditions and fewer constraints.”

When you break this data down by region, we see that the South has had the highest in-migration since the 1990s, and the Northeast the greatest out-migration. The West had been second to the South for most of the period of 1994 to 2021 and been in the positive for most of the time, but movement into the West has dropped dramatically in the last few years, with the largest Western state, California, responsible for the vast majority of that negative trend.

Florida is the superstar when it comes to attracting new businesses and payrolls from out of state, reflecting in amplified form the broader trend across the South. In-migration to Florida, like out-migration from California, has increased significantly since 2018. In the Northeast, New York is losing the most firms, and in the Midwest Illinois is in a similar position.

These trends are consistent with migration of residents and households, with similar states – like Texas and Florida – growing the fastest, and states life California and New York shrinking. That balance of population eventually has political consequences as well, of course, as states that lose enough population eventually end up with less political representation at the federal level when seats in the U.S. House of Representatives are reapportioned.

New York, California, and Illinois lost House seats after the 2020 census. Florida and North Carolina gained a seat, and Texas gained two seats. One of the few places that ran counter to this trend was deeply blue Oregon, which also gained a seat.

The implications of this are important, if not particularly complicated. States that make it easier to do business – and to keep more of the money you make afterward – are more likely to attract new businesspeople to their borders. More companies moving into your state is going to be good for employment and economic opportunity in general.

We’ve seen these migration patterns for a long time, and as the Bureau of Labor Statistics data shows us, the relationship has only accelerated in recent years: the velocity of firms moving between states has almost doubled since the 1990s, and the divergence of the in-migration and out-migration states has widened. When state legislatures make it more difficult to live and work in a place, fewer people are going to end up living and working there.

We also covered this topic in Episode 25 of the Free the Economy podcast (state migration segment starts at 4:05). If you want to dive deeper into state vs. state tax and regulatory comparisons, look back at Episode 10 with Shoshana Weissmann of the R Street Institute, Episode 16 with Brooke Medina of the John Locke Foundation, and Episode 19 with Adam Millsap of Stand Together.