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.
Last year, financial information website SmartAsset published the results of its study, “Where High-Earning Households Are Moving1https://smartasset.com/data-studies/where-high-earning-households-are-moving-2024.” 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.
A new website from Unleash Prosperity, www.VoteWithYourFeet.net2http://www.votewithyourfeet.net, allows users to track the migration of people and income between any two states. Between 2012 and 2022, Michigan lost a net of nearly 66,000 residents and almost $6.9 billion in adjusted gross income to Florida. This represents roughly 60% of Michigan’s total domestic out-migration and almost 90% of Michigan’s lost gross income.
This trend raises red flags regarding the state’s economic climate and its tax policies.
A closer look highlights something the Mackinac Center has pointed out repeatedly: Tax rates and structure matter a lot in where people want to live and work3https://www.mackinac.org/blog/2023/taxes-matter-to-state-population-growth. Of the states gaining the most high-income households, almost all have lower tax rates than Michigan. (Several have no income tax at all.)
While almost half of states reduced their personal income tax rates, the Whitmer administration negated a statutory cut to Michigan’s income tax rate, effectively raising taxes – a move endorsed by the Democratic majority on Michigan’s Supreme Court4https://www.freep.com/story/news/politics/2024/08/30/no-permanent-income-tax-cut-michigan-supreme-court/75016772007/. States with lower rates or no state income tax at all are becoming increasingly attractive.
The Mackinac Center’s 2024 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 faster than Michigan. All others except 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%5https://taxfoundation.org/data/all/state/state-income-tax-rates/, or North Carolina, which will undercut Michigan’s 4.25% rate in 20266https://www.ncdor.gov/taxes-forms/individual-income-tax/tax-rate-schedules, are experiencing growth in high-income households.
And the competitiveness gap will widen in the coming years. In October, as part of a bipartisan agreement on the FY 2026 Michigan state budget, Gov. Whitmer and legislators made Michigan the first state to decouple its tax code from several pro-growth provisions in the federal One Big Beautiful Bill Act.
Michigan businesses will no longer benefit from the following:
- 100% depreciation for qualified production property (QPP) to spur capital investments through new or expanded construction;
- Immediate or two-year 100% deduction for domestic research and development, and allowance for small- and mid-size businesses to use the provision for research and development deductions retroactively starting in 2022 by filing amended returns;
- Interest deductions restored to the pre-Earnings Before Interest, Taxes, Depreciation, and Amortization (EBIDTA) calculation (30% limit);
- Bonus depreciation, allowing full deduction of qualifying assets in the year they were placed in service; and
- Immediate deduction up to $2.5 million of small and mid-size business purchases – double the old limit7https://www.michamber.com/news/legislature-votes-to-split-from-federal-tax-code-what-it-means-for-you/.
According to the Michigan Chamber of Commerce, “lawmakers have effectively imposed a $2 billion tax hike over the next five years and created a far more complex, confusing and less competitive tax environment for Michigan employers.”
Tax policy is not the only area in which Michigan has made itself unattractive in recent years. Michigan had the longest, broadest and most arbitrary COVID lockdowns in the country8https://www.michigancapitolconfidential.com/analysis/michigan-had-the-worst-covid-lockdowns-yet-more-deaths-than-other-states?_gl=1*10vo9nm*_gcl_au*NjM5MTg0NDA2LjE3NTk1MDE3NTQ.*_ga*MTg3ODQ3OTY3MS4xNzUxNDU5NjUx*_ga_4Q607QFF7P*czE3NjE2NjkwMDQkbzM5JGcxJHQxNzYxNjcxNDc4JGoyNiRsMCRoMA.. Two years ago, a temporary Democrat trifecta, among other unwise decisions:
- Repealed Michigan’s right-to-work law9https://legislature.mi.gov/documents/2023-2024/billanalysis/House/pdf/2023-HLA-0034-B91111E9.pdf;
- Restored prevailing wage on government10https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-act-10-of-2023 and imposed it on energy construction11https://legislature.mi.gov/documents/2023-2024/billanalysis/Senate/htm/2023-SFA-0571-N.htm;
- Enacted a “net zero” law that will make Michigan’s electricity even more expensive and unstable12https://www.michigan.gov/whitmer/news/press-releases/2023/11/28/governor-whitmer-signs-historic-clean-energy-climate-action-package;
- Repealed K-12 school accountability13https://www.legislature.mi.gov/documents/2023-2024/billanalysis/Senate/pdf/2023-SFA-4166-F.pdf; and
- Allocated half of the state’s cash balance toward corporate welfare for unpopular manufacturing projects that are already being scaled back or imploding14https://www.mackinac.org/pressroom/2025/michigan-has-authorized-4-7-billion-in-taxpayer-funded-business-subsidies.
While all that is daunting, Michigan has its merits. Having lived previously in several other states, I say the overall quality of life is excellent. The summer weather is glorious. Grand Rapids is vibrant, northern Michigan is charming, and downtown Detroit has rebounded since its bankruptcy. Michigan has great land for agriculture and an abundance of high-quality, inexpensive golf courses – both explained by our state’s access to one-fifth of the world’s supply of fresh water. With a smart and forward-looking policy approach, Michigan could and should be the Florida of the North. Put simply, there is no non-policy-related reason why Idaho should be growing much faster than Michigan.
But Michigan policymakers have thus far squandered these advantages and made our state unappealing through decades of short-sighted and unwise actions. Michigan sits 49th in U.S. population growth so far this century. Thank God for West Virginia.
The implications of Michigan’s long-term population, business, and wealth declines are numerous. 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 environment15https://www.bizjournals.com/southflorida/news/2024/05/07/ken-griffin-miami-donations.html, 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 and economic policy are connected to growth and take more lessons from thriving states like Florida to attract the kinds of people who can pay taxes and help fund the state’s future.
David Guenthner is Executive Director of Workers for Opportunity at the Mackinac Center for Public Policy, a free-market research institute headquartered in Midland, Michigan.
