The Great Migration

Was reading some data from the Cato Institute.  It has to do with Tax Reform and Interstate Migration.  The problem is the data is a little too fresh.  Tax reform was only passed in 2017, so 2018 is really the first year that people are feeling the effects of it.

One of the major effects is SALT.  That’s the ability of citizens to deduct state and local taxes from their federal taxes.  In the past, it’s always been allowable.  Now, it is not and high tax states are trying to find an end run around it.  They have even resorted to the courts, trying to characterize taxes we pay for public schools as charities.  Of course, the other tact might be to act responsibly and reduce the tax burden on citizens but who knows a politician that would want to do that? There is no clear relationship between the level of taxation and the quality of government services or the quality of public schools.

86 percent of the middle class and higher income people in the US received an income tax cut.  This affects a lot of people.  The reduction in SALT will limit the amount of people who can claim deductions for state and local taxes from 42 million to 17 million people.  I am glad SALT went away because it was a subsidy to the wealthy on the backs of the poor.  It also was a subsidy of high tax states by low tax states.  Why should citizens of Tennessee pay for the government largesse of New York?

When I speak with my friends who have large homes and earn a lot of income, they are running the numbers and will actually pay more in tax than they did previously because of the inability to deduct state and local taxes.

A lot of people in high tax states like Illinois, New Jersey, New York and California are looking at leaving.  Illinois and the city of Chicago has seen out migration for the past few years which was a trickle and is now a stream.  Many of my friends are hitting the bricks to Florida and Arizona.  Some of this is age and retirement.  But a lot of it is driven by taxes and opportunity.  I am anecdotally hearing stories of the African-American middle class and many middle class whites leaving for places like Atlanta and Nashville.

The study shows, “The raw data suggest that taxes do influence migration. Of the 25 highest-tax states, 24 of them had net out- migration in 2016.”  New York had the highest out migration.  Florida the largest in-migration.  Again, I think you can chalk that up to baby boomers retiring but New York’s tax base is shrinking and Florida’s is growing.   The study says, “The out-migration of high earners is a serious threat to high-tax states because those individuals pay a large share of state income taxes, invest in new businesses and generate jobs, and are heavily engaged in philanthropy.”