Lower tax­ing states at­tract US in­flux

The Weekend Australian - - INQUIRER - Cameron Ste­wart is also US con­trib­u­tor for Sky News Aus­tralia.

states such as New York (1.38 mil­lion), Cal­i­for­nia (1.1 mil­lion), Illi­nois (690,000), Michi­gan (593,000) and New Jersey (525,000). Each of these are high­tax Demo­crat states, ex­cept for Michi­gan, which nar­rowly voted for Trump in 2016.

By con­trast, the states with the big­gest net in­flow of peo­ple were Texas (1.47 mil­lion), Florida (779,000), North Carolina (609,000), Ari­zona (450,000) and Ge­or­gia (378,000). Each of these are low-tax­ing Repub­li­can states.

“It is get­ting harder and harder ev­ery year for those apol­o­gists for high-tax­ing states to ra­tio­nalise their point of view, given the over­whelm­ing amount of data in the direc­tion of free-mar­ket pol­icy,” says Wil­liams.

This data is backed by that col­lected by the large US re­moval com­pa­nies in­clud­ing U-Haul and North Amer­i­can Mov­ing Ser­vices, which pro­duce an­nual re­ports on the mi­gra­tory habits of their clients. North Amer­i­can Mov­ing Ser­vices’ US Mi­gra­tion Re­port for 2017 shows the top five in­bound states for house­hold moves were Ari­zona, Idaho, North Carolina, South Carolina and Ten­nessee, while the top five out­bound states were Illi­nois, Con­necti­cut, New Jersey, Cal­i­for­nia and Michi­gan.

All five top in­bound states are Repub­li­can while all of the top out­bound states are Demo­crat, with the re­cent ex­cep­tion of Michi­gan.

“The ev­i­dence sug­gests that Amer­i­cans are mov­ing from states that are rel­a­tively more eco­nom­i­cally stag­nant, Democrat­con­trolled, fis­cally un­healthy states with higher taxes, more reg­u­la­tions and with fewer job op­por­tu­ni­ties to Repub­li­can-con­trolled, fis­cally sound states that are rel­a­tively more eco­nom­i­cally vi­brant, dy­namic and busi­ness friendly, with lower tax and reg­u­la­tory bur­dens and more eco­nomic and job op­por­tu­ni­ties,” says Mark Perry, eco­nom­ics pro­fes­sor at the Univer­sity of Michi­gan.

In fi­nan­cial terms, the most re­cent data also shows a wealth flow from high-tax states to low- tax states. Between 2012 and 2015, Illi­nois lost $US13.6 bil­lion in ad­justed gross in­come, while New Jersey lost $US8.5bn and Con­necti­cut lost $US6.2bn. Mean­while, Florida gained $US39.3bn.

Democrats and scep­tics do not deny these mi­gra­tory trends but they say it is disin­gen­u­ous to credit them to lower taxes, point­ing out that there are many rea­sons peo- ple move in­ter­state and that taxes are not at the top of the list.

Cris­to­bal Young, au­thor of The Myth of Mil­lion­aire Tax Flight, ar­gues that the com­mon be­lief that mil­lion­aires are mi­grat­ing across the US to find lower taxes is over­stated. “Al­most all of the tax-mi­gra­tion moves (in­volv­ing mil­lion­aires) are just to one low-tax state: Florida, where low in­come taxes com­min­gle with sun, sand and palm trees,” she writes.

Oth­ers ar­gue that the shift in pop­u­la­tion from Amer­ica’s cold, in­dus­trial north­east to the wider spaces and bet­ter cli­mates of the south is a broader de­mo­graphic trend that has been un­der way for some time and can­not be at­trib­uted pri­mar­ily to tax. They ar­gue that peo­ple mostly move state for rea­sons other than tax, such as for jobs and eco­nomic op­por­tu­nity, for fam­ily and life­style rea­sons, or to set up a busi­ness.

Wil­liams coun­ters that tax rates also af­fect some of these fac­tors, in­clud­ing job prospects, eco­nomic op­por­tu­nity and busi­ness vi­a­bil­ity.

At a broader level, crit­ics say tax com­pe­ti­tion between the states is un­healthy for the coun­try be­cause it leads to a “race to the bot­tom”. This, they say, in­evitably leads to a short­age of state rev­enue to pro­vide ba­sic com­mu­nity ser­vices and in­fra­struc­ture that peo­ple ex­pect of a state gov­ern­ment.

But Joel Grif­fith, di­rec­tor of tax pol­icy with the Amer­i­can Leg­isla­tive Ex­change Coun­cil, says low­tax states are not only cheaper to live in but pro­vide more eco­nomic op­por­tu­nity, which is why they are at­tract­ing more peo­ple.

“Aca­demic data sug­gests the most harm­ful tax are taxes on cap­i­tal and in­come,” he says. “Prop­erty taxes and sales tax might not have the same di­rect im­pact but those kinds of taxes cer­tainly in­flu­ence where a per­son wants to set­tle down.”

“For in­stance, the typ­i­cal house cost in New Jersey is about the same as in many ar­eas of Colorado, but the prop­erty tax bur­den for that same house can be up to four times as much in New Jersey.”

Grif­fith dis­misses the claim that cli­mate, rather than taxes, is driv­ing mi­gra­tion pat­terns within the US. “We have seen a lot of peo­ple leav­ing Cal­i­for­nia — a beau­ti­ful state with beau­ti­ful beaches — to move to places like Ne­vada, Ari­zona and Texas.”

The Trump tax re­forms are ex­pected to en­cour­age this move­ment from high-tax to low-tax states. The re­form bill caps de­duc­tions for state and lo­cal taxes at $US10,000, a move that will hit wealthy tax­pay­ers in Cal­i­for­nia, New York, Illi­nois and New Jersey. Iron­i­cally, this has led gover­nors and Democrats in those states — who have long de­nied any link between tax rates and mi­gra­tion between states — to con­cede there is a link.

“Peo­ple with higher in­comes pay a lot more money, and some of them may be tempted to leave,” Cal­i­for­nian Gov­er­nor Jerry Brown said last month af­ter Wash­ing­ton passed the tax pack­age. “This was an as­sault by Repub­li­cans in congress against Cal­i­for­nia.”

The fear of a so-called mil­lion­aire ex­o­dus is es­pe­cially high be­cause in Cal­i­for­nia the wealth­i­est 1 per cent pay 48 per cent of in­come tax, so even a hand­ful of rich fam­i­lies leav­ing could have a dis­pro­por­tion­ate im­pact on the state’s cof­fers.

“The new state law is kind of like ic­ing on the cake for some who were think­ing about mov­ing out of the state,” Cal­i­for­nian state Demo­crat Fiona Ma says. “If they don’t have to stay here be­cause of work or fam­ily, it doesn’t give them a lot of in­cen­tive.”

New York Gov­er­nor An­drew Cuomo has also warned that the tax re­forms could lead wealthy New York­ers to flee the state.

“Peo­ple will take a cer­tain amount of abuse and then there is a point,” he says. “The ques­tion is: what is that point? No­body knows for sure, but you don’t want to reach that point.”

In New Jersey, the Demo­cratic pres­i­dent of the state Se­nate, Steve Sweeney, has warned against in­tro­duc­ing a “mil­lion­aire’s tax” in the state be­cause “we can’t af­ford to lose thou­sands of peo­ple”.

“You know, 1 per cent of the peo­ple in the state of New Jersey pay about 42 per cent of its tax base,” he says. “And you know, they can leave.”

Wil­liams says tax-driven mi­gra­tion between states is also con­tribut­ing to the broader changes in the po­lit­i­cal de­mo­graph­ics of the US. The pop­u­la­tion shifts are lead­ing to fewer House of Rep­re­sen­ta­tive seats for high­tax­ing states and more for lower tax­ing states.

“The 2017 cen­sus es­ti­mates pro­vide a clear man­i­fes­ta­tion of how states with com­pet­i­tive, freemar­ket poli­cies con­tinue to win the day,” he says.

For tax refugee Su­san But­ton, it came as a sur­prise to learn she is not the only one in her small com­mu­nity who moved across the bor­der for tax re­lief.

“Here in the Po­cono Moun­tains of north­east Penn­syl­va­nia, I un­der­stand there are other fam­i­lies who have re­lo­cated here from New York and New Jersey (be­cause of) the high cost of liv­ing in those states,” she says.

“It’s sad be­cause New York is one of the most beau­ti­ful states. Ni­a­gara Falls, the Fin­ger Lakes, the im­pres­sive Adiron­dack Moun­tains — I still miss see­ing those.”

AP

Don­ald Trump on a tour of Sh­ef­fer Corp in Blue Ash, Ohio, to push his tax pol­icy

Tax refugee Su­san But­ton

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