STUMP » Articles » Go Somewhere Cheaper, Young (and Old) Man! » 17 July 2015, 07:21

Where Stu & MP spout off about everything.

Go Somewhere Cheaper, Young (and Old) Man!  

by

17 July 2015, 07:21

I know this may be rich coming from somebody who lives in the most expensive county to live in (and yes, my tax bill is just about at the median), but it does seem that, at least on the margin, having high taxes drives people away:

Tired of high taxes? Maybe it’s time to move
CNBC data analysis shows outbound flow from high-tax states.

Everyone complains about taxes. But millions of American households apparently are doing something about it: Picking up and moving.

A CNBC analysis of tax data and figures provided by two major national moving companies shows that states with the highest per-capita taxes, for the most part, are also seeing the biggest net migration out of those states.

Take Connecticut, for example.

Earlier this week, the Nutmeg State’s legislature approved a collection of new taxes to close a two-year, $40 billion budget to help pay the multibillion-dollar tab to repair and replace the state’s dilapidated roads and bridges. The package includes a 50-cent-per-pack hike in cigarette taxes and a bump in tax rates on corporations and the state’s wealthiest earners.

Yeah, I live in the most expensive county, and I work in an adjoining, really expensive state.

Here’s more on Americans on the move:

Historically, about 17 percent of families move in a given year, but the recession knocked that number down as low as 11 percent, said Kimball Brace, president of Virginia-based Election Data Services. After two straight years of improvement, the number of moving families has partially recovered to about 15 percent.

17%?! Really? That seems really high to me.

Back to the article:

Based on current population growth and loss trends, Arizona, California, Colorado, Florida, North Carolina, Oregon, Texas and Virginia would gain congressional seats in 2020, Election Data Services estimated this year. Alabama, Illinois, Michigan, Minnesota, Ohio, New York, Pennsylvania, Rhode Island and West Virginia would lose seats.

Many areas received a large influx of people last year compared with 2013: Hillsborough County, Florida, Clark County (Las Vegas), Nevada, San Joaquin County (Stockton), California, Pinal County (south of Phoenix), Arizona, and Montgomery County (northwest of Nashville), Tennessee.

Other counties saw a bigger exodus last year: Cook County (Chicago), Illinois, which lost more than 48,000 people to moves, 17,000 more than the year before; Fairfax County, Virginia, a District of Columbia suburb; Brooklyn and Queens, New York, and Los Angeles County, California.

William Frey, a demographer at the Brookings Institution, said working-age people such as the Dunlaps are joining retirees in moving to Florida from Northeastern states, and from Los Angeles to eastern California, Arizona and Nevada.

Now, if you look at population numbers only, you’ll see that a lot of those places, such as Queens, aren’t losing in total numbers, because births and immigration counteract the outflow. But it does mean their growth is going to be lower than other places.

Here is a county-by-county map of the migration:

Some research on the matter indicates that high taxes may be a driver in these migrations.

IT’S NOT JUST TAXES

I am mentioning the high tax stuff, but there are lots of reasons people move other than the taxes (directly):

And factors such as job opportunities, taxes and housing costs can help drive relocation.

The “huge” increase in people leaving Cook County – 17,000 more than in 2013 – could be linked to a painfully slow recovery there, said economist Richard Dye of the University of Illinois.

In New York, the Empire Center for Public Policy, a fiscal watchdog group, found that upstate residents are leaving at a faster rate than city dwellers.

“Sure, people make money on Wall Street and retire to Florida, but that’s only one fragment of the economy in New York,” said Empire Center spokesman Ken Girardin.

I used to work in Manhattan, for two different companies. The first company (TIAA-CREF) is still there, but they relocated a great number of the people to Charlotte, North Carolina. The other one moved the entire area (life reinsurance) to Charlotte. Many other major financial companies have relocated to North Carolina, New Jersey, and other cheaper locations.

It’s not just a matter of individual taxes, but expense for the corporations to operate. It’s very expensive to operate in Manhattan. Even one of NYC’s most famous stores had to close its prime location due to cost. It’s the taxes, rents, everything. Only the highest-end, location-dependent stuff feel the need to stay there.

HIGH DEBT LOCALES

And now I’m bringing it around to some of the places I’ve written a lot about: Puerto Rico, Chicago, and Cook County (the county for Chicago, but including many of its suburbs).

Puerto Rico has seen a huge drop in population:

Facing a crisis of monumental proportions at home, tens of thousands of people are fleeing a Caribbean island in search of a better life in the United States only to find hardship and struggle on American shores. Their stories sound like those of millions of migrants – poverty at home, where the economy lies in tatters – but they differ from millions of others: they’re already American.

Unable to pay its $73bn debt, Puerto Rico has begun closing schools and watching its healthcare system collapse and 45% of its people living in poverty. A historic drought has prompted water rationing for a utility service hampered by years of poor planning. Emigration to the mainland has accelerated in recent years, activists say, and data shows that from 2003 to 2013 there was a population swing of more than 1.5 million people.

“This new wave of immigration can be compared with the immigration in the 1930s and 40s,” said Edgardo González, coordinator of the Defenders of Puerto Rico, an activist group. The Great Depression and second world war spurred the so-called “Great Migration”, when tens of thousands of Puerto Ricans moved to New York every year for nearly two decades.

And more on Puerto Rico:

In what some experts characterize as the largest out-migration since the 1950s, emigration to the U.S. mainland has accelerated in recent years, with 144,000 fleeing from mid-2010 to 2013, according to a Pew Research Center study using U.S. Census Bureau data. The island’s population now stands at 3.6 million, down from it’s population peak of 4 million residents in 2009.

Several moving companies in San Juan confirmed they are extremely busy these days, packing homes for new clients heading for destinations across the United States, including Miami, Orlando, New York, Boston, Chicago and cities as far as the west coast.

The departures come as Puerto Rico faces an estimated $72 billion debt the governor has said is unpayable. In a recent televised address, Gov. Alejandro García Padilla said that at the rate the debt situation is developing, every man, woman and child on the island would owe creditors $40,000 by 2025.

“It’s hard to quit and start over but I have no choice,” said Puente, who was born in Bayamón. “My kids are worried and ask many questions but they understand. We don’t even have money to go to the movies. The cost of living is too high.

I ran the following image before:

But let’s take a look at the top ten (or rather, bottom ten) with regards to population change:

Puerto Rico’s change is drastic, but it’s also pretty bad in many of these. Yes, our buddy Illinois is up there, but West Virginia actually lost population in the past 4 years. Some of these other states may flip from very slight growth to shrinking.

And then, where will there revenue come from?

TAXES TAXES MORE AND MORE TAXES

The story is states may be forced to increase taxes:

In late April, Standard & Poor’s released a report noting that six years into an economic expansion, more than 30 states face a budget shortfall in fiscal 2015 or 2016 (or both). S&P said there’s no immediate threat to credit quality, but “the fact that so many states confront shortfalls at all serves as an early warning of sorts.”

The U.S. Government Accountability Office estimates that states will need to take action today and maintain that action for 50 consecutive years to close their fiscal gap. The GAO projects that the peak in state tax receipts—2007—will not occur again until 2058.
…..
States are spending less, and some numbers stand out for sheer size of restraint being shown, said Donald Boyd, senior fellow at the Rockefeller Institute, author of a forthcoming report that looks at the weakness of state finances today versus previous post-recession periods.

Social benefit (Medicaid), consumption (public employees) and investment spending by the states has experienced a sea change, falling 18 percent since the start of the recession, with net investment down by more than 55 percent, according to the Bureau of Economic Analysis.

It’s kind of interesting that Medicaid expenditures have dropped, given the massive Medicaid expansion in Obamacare.

They go on about fewer schools being built, but that’s hardly a surprise when they have fewer students. Remember, the “cuts” in Chicago Public Schools is because they have fewer students than before, not because they actually have cut their rate of spending.

Oh, and about Chicago and its county…

It’s not just the teachers’ pensions that are in trouble in Chicago; pensions for all municipal workers are woefully underfunded. (Separately, Cook County plans to raise its sales tax by one percentage point to start dealing with its own yawning pension gap.) Emanuel is willing to raise taxes by instituting a $175 million annual pension levy for the schools, but even his best-case scenario for pensions leaves a structural deficit in the CPS operating budget. And an Illinois Supreme Court ruling puts the previously negotiated city reforms in jeopardy. The court struck down state-level pension reform, saying that even future pension accruals for public employees can’t be reduced—a ruling that triggered the Moody’s downgrade. Emanuel denounced the Moody’s decision while strongly defending the legality of his reform. He makes good arguments, but he’s up against an extremely pro-union court. Perhaps recognizing this, he isn’t even trying to reform the police and fire pension funds. Instead, he proposes simply to defer and extend payments. If adopted, it would mean that the city wouldn’t be on track to funding its pensions until 2021—a decade after Emanuel was first elected. Even so, Crain’s projects that this would raise the city’s slice of property taxes next year by 31 percent—and by more than 50 percent if the deferrals aren’t approved.

I don’t think they’re going to be able to get the money they hope for with the tax increase.

Cook County did get its sales tax increase passed.

Cook County Board President Toni Preckwinkle persuaded just enough commissioners to approve a 1-percentage-point sales tax increase Wednesday — the culmination of a major political about-face, but a move she said was needed to bail out the county worker pension system.

Following weeks of one-on-one lobbying sessions by Preckwinkle, nine of the 17 commissioners voted to raise the county share of the sales tax to 1.75 percent. Add up the state, city and public transit portions, and the total sales tax rate in Chicago once again will hit 10.25 percent — one of the highest rates in the nation.

WHOA! Even New York doesn’t have a sales tax that high.

The most controversial vote of Preckwinkle’s five-year tenure, which came after 4 1/2 hours of testimony, debate and parliamentary maneuvering, was replete with irony. Preckwinkle first rose to power in 2010 on a campaign pledge of repealing what remained of an identical sales tax increase under predecessor Todd Stroger. She even ran a TV ad featuring a Ben Franklin impersonator in which she reminded voters that “a penny saved is a penny earned.”

Preckwinkle kept that pledge in part by cutting payroll, streamlining operations, reducing the number of jail inmates and taking advantage of increased federal funding under the Affordable Care Act for the county’s vast public health system. After winning re-election without opposition, however, she pushed the sales tax hike as a way to restore financial health to the county’s underfunded pension system, cover payments for debt incurred before she took office and spend more on roads and bridges.

Oh, one of those “forced to raise taxes” things. Let’s see how bad it will be when you lose the pension reform case.

But let’s compare sales taxes.

As noted in the wikipedia article, these numbers are outdated. But it gives one an idea. Look how high the Puerto Rican sales taxes are. Yeesh.

TRY TO TAX THOSE NOT THERE?

The problem, of course, with sales taxes, and income taxes… and all of these taxes, really, is that it’s really difficult to tax people that aren’t there.

As noted in a prior post, Connecticut keeps tabs on the people it’s most dependent on for tax revenue. Then there’s the great escheatment source, which makes it even easier to take assets from those who left… because they’re not around to know the money is there. (I found some escheatment funds for myself in California, of all places, once, but it wasn’t worth the money/time to get those $2 back.)

Maryland got caught trying to double tax people and was smacked down by the Supreme Court. Nice try, guys.

These out-of-location taxes have been escalating for obvious reasons: non-residents don’t vote in the elections.

As states struggle to boost their revenues, one strategy has become increasingly popular regardless of political party: taxing out-of-state businesses.

The latest example is Tennessee, whose Republican Gov. Bill Haslam proposed a “Revenue Modernization Act” last month. It would require firms selling $500,000 or more to residents to pay the state’s corporate-franchise tax—a 0.25% levy on a company’s local net worth—even if these firms have no physical presence in the state. If the measure passes, Tennessee would join more than three-dozen states (according to a Bloomberg BNA Survey) that have changed the rules for when they impose income or other business taxes on a company not located in-state.

California, New York, New Jersey, Michigan and Massachusetts are among the most aggressive, according to CFO magazine. But Pete Vegas, CEO of Los Angeles-based Sage V Foods, which sells ingredients to food-processing companies, might add Washington to that list.

…..
Exercising its constitutional authority to regulate commerce among the states, Congress has long sought to limit a state’s ability to collect taxes from businesses not based within its borders. The 1959 Interstate Income Act prohibits states from imposing an income tax on a business with no physical presence in a state merely because the firm solicited orders in-state.

In 1967 the Supreme Court ruled (National Bellas Hess v. Illinois) that Illinois could not require that a Missouri mail-order company collect sales tax on its goods shipped into the state. But North Dakota tried again in the early 1990s, claiming it could force an out-of-state catalog retailer named Quill to collect sales tax on goods it shipped into the state. Its “presence”? The company provided North Dakota customers with software on floppy disks to make their orders.

……
But as Justice Kennedy and members of Congress ponder when it is fair to collect sales taxes, they ought to also consider the ways states are exploiting technological changes to squeeze more income-tax revenues out of often unwary businesses. Updating tax fairness in a technological age should be a two-way affair.

Governments are coming up against limits to what they can tax, and getting obviously desperate.

Expect more of this.

Compilation of Connecticut posts


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