Texas and Florida a big draw with zero in­come tax


Su­san But­ton doesn’t call her­self a tax refugee but that is pre­cisely what this mother of four was when she moved from New York state to a town in ru­ral Penn­syl­va­nia last year.

Hav­ing lived in New York, one of the high­est tax­ing states in the US, the now-re­tired sin­gle mother was in­creas­ingly an­gered by how much more she was spend­ing on every­thing. So last Au­gust she packed up and moved across the bor­der, where state taxes were much lower.

“It’s def­i­nitely cheaper to live here,” she tells In­quirer from her new ru­ral moun­tain home in north­ern Penn­syl­va­nia. “Not only was the more than 8 per cent sales tax (a com­bi­na­tion of state and lo­cal sales tax) on nec­es­sary goods such as cloth­ing bur­den­some but this sales tax on re­pairs — ap­pli­ance re­pair, car re­pairs — it counted up. Imag­ine pur­chas­ing a new re­frig­er­a­tor for $US800 ($1030) plus a sales tax of over $US64 ex­tra? I knew large fam­i­lies who drove over the state line to Penn­syl­va­nia to pur­chase their kids’ school clothes just to avoid the sales tax.”

But­ton is not alone. More and more, Amer­i­cans are vot­ing with their feet to flee high-tax­ing states for states with lower taxes. It’s a phe­nom­e­non that is tipped to ac­cel­er­ate af­ter Don­ald Trump’s re­cently passed tax re­form pack­age re­moved key de­duc­tions for those liv­ing in high-tax states such as Cal­i­for­nia, New York and New Jersey, mak­ing it even more ex­pen­sive to live there.

Un­like Aus­tralia, US states can set their own lev­els for all their taxes, in­clud­ing state in­come tax (levied in ad­di­tion to fed­eral in­come tax), prop­erty taxes and sales tax. This leads to some­times vastly dif­fer­ent lev­els of state in­come tax. For ex­am­ple, Cal­i­for­nia has a top mar­ginal per­sonal in­come tax of 13.3 per cent, New York has 12.7 per cent and Florida and Texas have no in­come tax.

But what now makes this is­sue so po­lit­i­cally sen­si­tive is that the tax flight across the US has be­come a vir­tual one-way flow — from high-tax­ing Demo­crat states to low-tax­ing Repub­li­can states.

As such, it has be­come part of the ide­o­log­i­cal war between the right and left as Democrats try to dis­pute the trend and Repub­li­cans try to tout it as proof that low-tax regimes are the way of the fu­ture.

“It is one of those ar­gu­ments that should not be ide­o­log­i­cal; it should be about what is work­ing and what is not work­ing,” Jonathan Wil­liams, chief econ­o­mist for the Cen­tre of State Fis­cal Re­form, tells In­quirer.

“There is no doubt that states that are keep­ing their taxes low and have a more free-mar­ket out­look are the states that are win­ning — peo­ple are vot­ing with their feet and with their wal­lets by mov­ing to states with lower taxes.”

For the past decade Wil­liams, along with fel­low con­ser­va­tive economists Stephen Moore and Ron­ald Rea­gan’s for­mer eco­nomic ad­viser Arthur Laf­fer, have tracked mi­gra­tion flows and paired them with state tax lev­els and other eco­nomic fac­tors.

They found that from 2006 to 2015, the big­gest net mi­gra­tion losses were from high-tax­ing

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