No Migration Without Taxation : State Exit Taxes

The movement of people and the movement of money are often discrete. As such, governments can address the effects of each separately. Because residence provides a general jurisdictional basis for state personal income taxation, however, money often moves with people. States must disentangle the two to prevent tax base erosion and improve distributional equity, particularly with many high-net-worth individuals migrating to states with more favorable tax regimes. A state exit tax may be the answer. This Article begins by examining exit tax theory and advancing novel applications of theories that support subnational exit taxation, both domestically and internationally. With a robust theoretical and technical foundation, this Article turns to state and local exit tax design. This discussion examines constitutional constraints to address specific tax base migration challenges—focusing on the justifications, distributional impact, and optimal exit tax design features to address each situation. If a state has a solid theoretical foundation and incorporates proper design principles, as this Article provides, an exit tax can effectively mitigate tax base migration while aligning with prevailing policy goals and avoiding constitutional infirmities