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