Saturday, April 28, 2018
Coming soon: Mass exodus from NY, CA due to high taxes
The following article appeared in the American Thinker on April 27th
By Rick Moran
Arthur Laffer and Steven Moore have penned an interesting article in the Wall Street Journal that gauges the impact of the cap on state tax deductions in high tax states.
In the years to come, millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states. This migration has been happening for years. But the Trump tax bill's cap on the deduction for state and local taxes, or SALT, will accelerate the pace. The losers will be most of the Northeast, along with California. The winners are likely to be states like Arizona, Nevada, Tennessee, Texas and Utah.
For years blue states have exported a third or more of their tax burden to residents of other states. In places like California, where the top income-tax rate exceeds 13%, that tax could be deducted on a federal return. Now that deduction for state and local taxes will be capped at $10,000 per family.
Consider what this means if you're a high-income earner in Silicon Valley or Hollywood. The top tax rate that you actually pay just jumped from about 8.5% to 13%. Similar figures hold if you live in Manhattan, once New York City's income tax is factored in. If you earn $10 million or more, your taxes might increase a whopping 50%.
About 90% of taxpayers are unaffected by the change. But high earners in places with hefty income taxes – not just California and New York, but also Minnesota and New Jersey – will bear more of the true cost of their state government. Also in big trouble are Connecticut and Illinois, where the overall state and local tax burden (especially property taxes) is so onerous that high-income residents will feel the burn now that they can't deduct these costs on their federal returns. On the other side are nine states – including Florida, Nevada, Texas and Washington – that impose no tax at all on earned income.
The authors put their finger on the real meaning of SALT: it prevents the rest of us from subsidizing the blue state model. By making rich taxpayers in blue states bear the true cost of all those goodies given out by their state governments, those living in low-tax red states will no longer subsidize the irresponsible spending habits in blue states.
Now that the SALT subsidy is gone, how bad will it get for high-tax blue states? Very bad. We estimate, based on the historical relationship between tax rates and migration patterns, that both California and New York will lose on net about 800,000 residents over the next three years – roughly twice the number that left from 2014-16. Our calculations suggest that Connecticut, New Jersey and Minnesota combined will hemorrhage another roughly 500,000 people in the same period.
Red states ought to brace themselves: The Yankees are coming, and they are bringing their money with them. Meanwhile, the exodus could puncture large and unexpected holes in blue-state budgets. Lawmakers in Hartford and Trenton have gotten a small taste of this in recent years as billionaire financiers have flown the coop and relocated to Florida. As the migration speeds up, it will raise real-estate values in low-tax states and hurt them in high-tax states.
We are the most mobile society in the history of industrialized civilization. The fact that we are a federal republic with fifty individual state governments makes choosing a place to live more than just a preference for climate or scenery. High taxes generally bring with them a higher cost of living, urban decay, crime, and a lack of economic opportunity.
So Americans are voting with their feet. And in this competition, it's no contest.