Evaluating Merits of State-Level Marginal Personal Income Tax Implementation: The Positive, Negative, and Inconclusive Empirical Impacts of State-Level Personal Income Tax Structure Changes on State-to-State Population Flows and Overall Personal Income Tax Revenue

Two recent, opposing trends in state-level tax policy changes have revitalized the debate on the utility of instituting or eliminating graduated personal income tax regimes. Proponents of implementing such a system from flat or no personal income taxes argue that the system redistributes wealth effectively; opponents argue that such a tax system will inspire high-earners to emigrate to lower-tax states, with the resulting system actually being more regressive than a flat tax regime. The extensive body of relevant literature lacks comprehensive scope, does not conduct a causal impact analysis of treatment, and/or fails to implement consistent evaluative methodology on a broad range of taxation change data. This paper utilizes a difference-indifferences regression analysis to establish statistical significance of treatment effect and qualitatively reviews key tax changes for further explanation of resident behavioral changes. The monolithic viewpoints of most of these papers are poorly suited for the subject of tax reform given that I found that the treatments' causal impacts on personal income tax revenue and population flows vary wildly between states and time periods. Therefore, I recommend that policymakers approach state-level tax reform holistically, considering the purpose of potential reforms as well as the current economic and social structures within the state, and only consider case studies of tax changes in very similar states. Otherwise, policymakers risk greatly misunderstanding the causality of studied tax changes.