House Democrats have not backed down from repealing the 2017 tax reform cap on the deduction of state and local taxes. And if you want to know why, take a look at the latest data from the Internal Revenue Service showing a huge exodus of wealth from high-tax states to low-tax states.
Each year, the IRS releases data on taxpayer migration and overall adjusted gross income between states. Its latest version for 2020 shows that migration from high-tax states to low-tax states has increased amid pandemic shutdowns and the shift to remote working.
The biggest gainers were Florida ($23.7 billion), Texas ($6.3 billion), Arizona ($4.8 billion), North Carolina ($3.8 billion). dollars), South Carolina ($3.6 billion), Tennessee ($2.6 billion), Nevada ($2.6 billion), Colorado ($2.3 billion), Idaho ($2.1 billion) and Utah ($1.3 billion). Idaho, Wyoming, Montana, Florida and South Carolina gained the most as a percentage of revenue in 2019.
Biggest losers: New York (-$19.5 billion), California (-$17.8 billion), Illinois (-$8.5 billion), Massachusetts (-$2.6 billion), New Jersey (-$2.3 billion), Maryland (-$1.9 billion), Ohio (-$1.4 billion), Minnesota (-$1.2 billion), Pennsylvania (-1, $2 billion) and Virginia (-$1.1 billion). New York, Illinois, Alaska, California and North Dakota lost the most as a percentage of 2019 revenue.
The migration of people from the Northeast and Midwest to the Sun Belt isn’t new, but the mild weather isn’t the whole story. California has the best climate in the country. It also has among the highest taxes and cost of living. Californians earning between $61,215 and $312,686 pay a top marginal tax rate of 9.3%. California taxes the middle class as if they were rich.
Notably, four of the 10 states that earned the most income in 2020 do not impose income tax (Florida, Texas, Tennessee and Nevada). The others generally have low tax burdens. The states that lose the most revenue typically have high income and property taxes. Taxes are not the only factor of migration. Schools, quality of life and cost of living also matter.
Yet high-tax states do not provide better public services and often have worse schools and public works despite higher spending. Democrats seem to forget that taxes are meant to represent the cost of providing government services, not a penalty for making money or a means of redistributing income.
These States exclude themselves from the market of mobile taxpayers. The SALT deduction helped ease the tax sting, but since 2018 the upper middle class and the wealthy have felt all the pain. It’s no surprise that more are fleeing to low-tax states, especially now that many have the freedom to work remotely.
It should also be noted that the migration has accelerated since the entry into force of the cap on the SALT deduction. California lost $8 billion in 2018, $8.8 billion in 2019, and $17.8 billion in 2020. But Texas gained $3.5 billion in 2018, $4 billion in 2019, and $6.3 billion in 2020. The average adjusted gross income of people leaving high-tax states also generally increased.
The migration of wealth over time significantly affects the fiscal and economic health of the state. The annual loss of income has a cumulative effect year after year. One year’s loss of revenue adds to the next year’s loss of revenue as the tax base continues to erode. The reverse is true for Florida, where incomes are rising.
When states lose taxpayers, they lose tax revenue that supports public services. Democrats in liberal states are trying to compensate by raising taxes, which is driving more people away. This non-virtuous cycle keeps repeating itself in New York, New Jersey and Illinois.
House Democrats representing suburban districts in high-tax states campaigned in 2018 to repeal the $10,000 SALT limit. Yet progressives complain that it would be a gift to the rich. They are right. Many high-tax states, including California, New York, New Jersey, Massachusetts, and Illinois, have enacted workarounds to help intermediate business owners (who file using the individual tax code ) to dodge the SALT limit. But these do not help wage earners with large capital gains and property tax payments.
In April, Representatives Mikie Sherrill, Josh Gottheimer and Tom Malinowski of New Jersey, Katie Porter (California) and Tom Suozzi (NY) called for a measure to be included in next year’s budget to ban the IRS to use funds for “regulatory guidance or decisions”. that restrict the ability of state governments to pass laws or policies that provide relief to taxpayers.
The best answer would be for those states to reduce their tax and regulatory burdens to make living in those states more affordable. Until they do, the great migration that has accelerated during the pandemic will continue.
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