STUMP » Articles » Taxing Tuesday: Are People Moving Due to Taxes? » 14 January 2020, 20:58

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Taxing Tuesday: Are People Moving Due to Taxes?  

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14 January 2020, 20:58

Blue State Redistribution

Subtitle: High-tax states are losing people, money and seats in Congress.

The U.S. population grew last year at the slowest rate since World War I as the birth rate and immigration declined, the Census Bureau reported last week. Slowing population growth will have significant economic and social implications for the country, but especially for high-tax states.

The Census Bureau and IRS last week also released state population growth and income migration data for 2018 that show the exodus from high-tax to low-tax states is accelerating. Four states have lost population since 2010 including West Virginia (-3.3%), Illinois (-1.2%), Vermont (-0.3%) and Connecticut (-0.2%), but 10 experienced declines last year. New York was the biggest loser as a net 180,000 people left for better climes. Over the last decade New York has lost more of its population to other states (7.2%) than any other save Alaska (8%), followed by Illinois (6.8%), Connecticut (5.6%) and New Jersey (5.5%).

Hmmm, what do these states have in common? Large tax burdens and politically powerful public unions. Illinois’s property tax rates are the second highest in the country after New Jersey. The state lost $5.6 billion in adjusted gross income last year to other states, about twice as much as in 2012. Notably, income outflow hasn’t increased from Michigan or Wisconsin.

….
Democrats in high-tax states blame the 2017 tax reform, which limited the federal deduction for state and local taxes to $10,000 and thus increased the effective federal tax rate for the well-to-do. The cap took effect in 2018, but most taxpayers would not have felt the pain until they paid their taxes last year. Taxpayer flight may accelerate even more now.

Liz Farmer at LinkedIn had her own take:

Let’s see what others have to say:

Bloomberg: Goodbye, New York, California and Illinois. Hello … Where?

Domestic migration statistics are frequently cited as evidence of the failures of blue-state governance, in particular the higher taxes imposed by states that are losing lots of residents. There’s something to that — income-tax-free Florida sure is attracting a lot of affluent people from Illinois and New York, and a recent study of high-income California taxpayers concluded that a 2012 income tax increase there did in fact drive some away. But California, Illinois and New York have all experienced bigger per capita personal income gains than the nation as a whole since the beginning of 2010, and all saw taxpayers with incomes below $50,000 overrepresented among the leavers from 2011 through 2018. These departures may indicate failures of governance as well, but it’s a different set of governance failures, presumably related more to housing costs, commutes and job opportunities than taxes per se.

There also isn’t much evidence in the IRS data — yet — of an exodus of high-income taxpayers hit by the state-and-local-tax-deduction limits imposed by the 2017 tax bill. That is, the number of taxpayers with adjusted gross incomes of $200,000 or more leaving for other states actually fell in high-tax California, Connecticut, Illinois, New Jersey and New York from 2017 to 2018, the year the cap went into effect. Those who ended up with higher tax bills due to the change generally didn’t find out exactly how much higher until 2019, though, so it may just be too early to tell.

As I have mentioned time and again, the main thing as a high-income, highly-locally-taxed person re: the Tax Cuts and Jobs Act — federal income taxes on me and mine did not increase. They were barely cut, though.

The main thing is we got less of a cut than people in other states. That’s it.

Here’s the deal – as Liz says, some of these people may have multiple residences, and are simply choosing the residence with the lowest tax burden as their primary residence in order to reduce their overall taxes. The IRS records will not necessarily have that information.

But one thing that may undercut the “oh, they’re just spending more days in one residence over another” story is the data that come from moving companies.

Moving companies again list Illinois high on ‘outbound’ movers lists in 2019

Illinois is an exporter of moving trucks, according to the companies that own them.

In annual reports, Atlas Van Lines, United Van Lines, and U-Haul all have Illinois listed as a state with significantly more outbound moving trucks than inbound ones.

Atlas said 61 percent of its moving trucks that crossed Illinois’ state lines were on their way out, making it the fourth-highest percentage of outbound moves in the nation.

United Van Lines has released its National Movers Survey every year for decades. In 2019, Illinois saw the tail lights of more than 4,500 of United Van Lines’ trucks and welcomed about 2,300.

To be sure, some people do not use movers, if they don’t have much to move. We’re not really all that concerned with that type of person, as we care about those who can fuel high government revenues.

Another type may not use movers, because they buy all new stuff for their new home.

But let’s get a grip:

The annual U-Haul “Top Growth States” report naturally trends toward more of a middle-class customer, according to U-Haul Illinois President Aaron Freeman, who said the majority of the company’s moves are from one part of Illinois to another.

“It’s more of a perception that everybody is fleeing the state,” he said. “I just don’t see it on the front line.”

Illinois ranked last again in U-Haul’s 2019 comparison of states, meaning the state had far fewer inbound moves than it did people taking their trucks and crossing state lines with them.

Some moves are not that far away. I’ve not used a big moving company myself, because when I’ve moved, I’ve had so little stuff that I could rent a van myself and shift things around. Or tote it in Stu’s van.

TAX INCENTIVES ARE BULLSHIT

Here is the specific paper: Evaluating State and Local Business Tax Incentives

The abstract:

This essay describes and evaluates state and local business tax incentives in the United States. In 2014, states spent between $5 and $216 per capita on incentives for firms in the form of firm-specific subsidies and general tax credits, which mostly target investment, job creation, and research and development. Collectively, these incentives amounted to nearly 40% of state corporate tax revenues for the typical state, but some states’ incentive spending exceeded their corporate tax revenues. States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is $178M for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, and poor places provide larger incentives and spend more per job. Comparing “winning” and runner-up locations for each deal in a bigger and more recent sample than in prior work, we find that average employment within the 3-digit industry of the deal increases by roughly 1,500 jobs. While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. Although these incentives are often intended to attract and retain high-spillover firms, the evidence on spillovers and productivity effects of incentives appears mixed. As subsidy-giving has become more prevalent, subsidies are no longer as closely tied to firm investment. If subsidy deals do not lead to high spillovers, justifying these incentives requires substantial equity gains, which are also unclear empirically.

I agree.

And I will leave it at that.

TAX STORIES

Let’s take a look at this last one.

New Jersey Gov. Phil Murphy (D) signed bipartisan legislation on Monday aimed at helping small business owners who were adversely affected by the $10,000 cap on state and local tax (SALT) deductions under President Trump’s 2017 tax law.

So-called pass-through businesses, such as partnerships and sole proprietorships, will soon have the option to pay state income taxes at the entity level rather than at the individual level. The Trump tax law only created a cap on deductions for state and local taxes paid at the individual level.

The New Jersey law takes effect for the 2020 tax year.

The authors of the legislation said the law could help small business owners save money, since most small businesses in New Jersey pay taxes through the personal tax code. Other businesses organized as pass-throughs include law firms, accounting firms and medical practices.

“This law will help to defray the out-of-pocket income tax hit for small business owners here in New Jersey and help alleviate the inequities created by the federal tax law,” state Sen. Troy Singleton (D), one of the authors of the legislation, said in a statement.

State lawmakers worked on the legislation with the New Jersey Society of Certified Public Accountants (NJCPA). The group praised the enactment of the measure.

Hmmm, this doesn’t sound like bullshit…. but we’ll see.

TAX TWEETS

=snort=

So, you may wonder what the Ja Rule – taxes connection is.

FYRE FESTIVAL’S JA RULE WANTS TO DO YOUR TAXES

Remember when starry-eyed tech entrepreneur Billy McFarland and business partner rapper Ja Rule managed the buildup and ultimate failure of the catastrophic Fyre Festival of 2017?

Now the rapper and self-claimed “mogul” is promoting tax company Value Tax, of which he claims on Twitter that he is an owner. On Tuesday, Ja Rule posted the following promotion from his verified Twitter account to his 229,000 followers:

IT’S TAX SEASON!!! It’s simple walk in let us do your taxes, walk out with cash in hand… we also do credit repair!!! #Valuetax pic.twitter.com/uAc4DM0GGj

— Ja Rule (@jarule) January 14, 2020

I didn’t embed the full tweet… because it’s been deleted.

A few more tweets with Ja Rule:


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