Amazing coincidences
I don’t know why I have to keep shooting down this Sunbelt myth. No, people don’t like hot weather, they like nice weather. But they really, really like no state income tax. Here’s the US by region:
This link has census data for the most recent decade (2000-2010). The US population grew at 9.7% over that decade. Let’s start with the south central states, which are hot and muggy. Between Kentucky and Texas there are 8 purple states (9 if you include West Virginia). Six of the 8 (or 7 of 9) had population growth below the national average, including oil rich Louisiana and Oklahoma. So much for the sun “belt.” Tennessee and Texas were the only two that grew faster. And oh by the way, they are the only two with no state income tax.
On the west coast, all states grew faster than the national average. Yes, its climate is nicer that the south central region. But look at the more detailed data and you’ll see that hot and sunny Washington state and Alaska grew the fastest of five bordering the Pacific. And oh by the way, Washington and Alaska are the only two with no state income tax.
How about the 9 states in the northeast? All grew slower than the national average, but tropical New Hampshire was the fastest of the tortoises. And oh by the way, New Hampshire is the only one with no state income tax.
How about the 12 Midwestern states? Like the northeast it was a slow growing area. But the best of a bad lot was South Dakota. Non-American readers should know that South Dakota offers NOTHING. Choosing to move to South Dakota over the Twin cities area of Minnesota is like choosing Belarus over Stockholm, Sweden. Think of it as a slightly warmer “Fargo.” And oh by the way, South Dakota is the only Midwestern state with no state income tax.
In the inland southwest there are 5 fast growing states. Nevada easily led the group. And oh by the way, Nevada is the only one with no state income tax.
Yes, there are a few outliers. The only southeastern state with no income tax is Florida, which grew “only” by 17.6%. Florida was narrowly edged out by Georgia (18.3%) and North Carolina (18.5%). It’s worth noting that over multiple decades Florida has grown faster than the others, but with its population recently surpassing New York it may now be a bit congested. In fairness, the same problem applies to California (which grew 10%).
And the ninth state with no income tax is Wyoming, which led Montana but trailed Idaho in the northern Rockies region. Unlike Idaho, Wyoming basically has no cities. How many frustrated residents of Buffalo, NY suddenly decide, “I want to be a cattle rancher”?
For the US as a whole, only nine states lack a state income tax. And the fastest growing state in the entire country was Nevada (at 35.1%), one of those nine.
Lots of amazing coincidences between having no state income tax and population growth relative to your neighbors.
Paul Krugman says:
So when you ask why Sunbelt states have in general grown faster than those in the Northeast, don’t credit Art Laffer; credit Willis Carrier.
I say credit both Laffer and Carrier, at the margin. Good weather and low taxes are both important. But people don’t like south central unless you also eliminate state income taxes.
However . . . I predict that tax differentials will play a less important role in the future. Tyler’s right that as the country gets ever wealthier, amenities will play an increasing role. (The dramatic and underreported slowdown in New Hampshire’s growth is the canary in the coal mine for supply-siders.)
Some day I hope to move to sunny LA.
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29. March 2015 at 10:06
Eh, don’t buy it unless people are really Irrational.
Last year I got a 35% pay raise to move from Colorado to California, and my state income tax bIll is going to be the same. CO has a flat tax of 4.9%, while California is bracketed.
Texas has confiscatory property tax rates that dwarf income tax bills faced by middle class Americans.
The only people who would hypothetically be incentivized to move based on tax rates are the wealthy: Texas is great for millionaires, while California has crazy high income tax rates on millionaires.
…but millionaires are staying in California, and they’re not flocking to Texas.
Nevadas growth is basically a function of California’s high cost of living for the working class.
29. March 2015 at 10:15
California could probably have a rate of 20% on millionaires and they wouldn’t move.
They’d just have less to spend on positional goods like land.
29. March 2015 at 10:21
Nick, You’ve said you “don’t buy it” but what don’t you buy? Which of my facts is incorrect? And how do your examples relate to this post? Did I discuss moves from California to Colorado? Did I say that I planned to move to California?
29. March 2015 at 10:33
Matt Iglesias thinks the significant variable is better zoning laws.
29. March 2015 at 10:38
As I mentioned on MR, I think it’s too simplistic to lump all population growth together without differentiating between growth due to differences in demographics and birth rates vs. growth due to migration. California, for example, looks much worse when looking purely at interstate migration compared to just looking at total population growth.
http://taxfoundation.org/blog/monday-map-migration-personal-income
29. March 2015 at 11:03
One good reason to prefer South Dakota over the Twin Cities and Belarus over Stockholm is the price level difference:
http://www.washingtonpost.com/blogs/govbeat/wp/2014/08/20/map-how-much-100-is-really-worth-in-hundreds-of-metropolitan-areas/
Also, fewer third-worlders &gangs in Belarus&SD.
I suspect South Dakota has less developed infrastructure than Belarus due to its miniscule population.
I just can’t see what’s attractive about L.A. Too much traffic. Houses packed like sardines. Smog. Earthquakes. Heat. High price level (especially in regards to rent). Sure, you can grow fruit gardens in your tiny yard there, but what’s the point of that?
29. March 2015 at 11:52
Interesting hypothesis – we’re getting a lot of newcomers in Oregon with very high income taxes. But it seems like we’re the exception that proves the rule. I did a few data visualizations on this a couple weeks ago: http://joeleider.com/data-visualization/where-the-states-get-their-tax-revenue-a-data-visualization-case-study/
It does seem like a few of the fast growers (Texas, Nevada, Florida) do get a lot less of their revenue from income taxes.
29. March 2015 at 12:21
SS,
What I don’t “buy” is your hypothesis. The total tax burden for lower and middle class workers is actually higher in most of these states you cite, so the data doesn’t fit.
I presented CA and TX because the TX tax burden is extremely high for the median household, one of the highest in the country.
As Yglesias has argued, Texas really just benefits from weaker zoning laws…and building costs in general. It would be very expensive and difficult to build in the SF Bay Area even if it had a “Texan” policy regime…two bays, three mountain ranges (almost a fourth), tons of bridges, expensive land, etc.
Now I would argue that if they’re rational, people move to where their after-tax COLA adjusted income is the highest…my understanding is that Minneapolis is #1 in that department. But the weather is lousy up there, so here we are
29. March 2015 at 12:28
Nice link Joe Leider,
Your regression chart shows that these “low tax” states aren’t really low tax…they’re low tax for rich people. And the people moving aren’t all rich people, they’re moving to states with a higher tax burden (for them). They’re moving, generally, for lower housing costs and an escape from winter. Some people are escaping humidity (ugh) as well and opt for CA or AZ.
I would also recommend looking at income tax progressivity. You should look at “taxes/GDP” for the bottom 90% of filers or something.
29. March 2015 at 12:37
Nick,
Your point that one should consider all tax burdens and not just income taxes is, of course, valid (as well as the point that cost of living is a factor), but, as regards taxes, it appears that Scott’s general point is more in line with the data. See, for example, the following Tax Foundation study which, I believe, takes into account all state and local taxes (not just income taxes):
http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-fy-2011
29. March 2015 at 12:57
Thanks Vivian,
But your link doesn’t address the distribution of that burden. Wealthy people in Texas have a smaller taxshare than those in California…and that matters a lot.
So, I point to the ITEP study that looks at taxshare by percentile. As you can see, top 1%ers in California have the largest share in the country at 8.7%. WA is only 2.4%, TX is 2.9%, WY is only 1.4%, FL is 1.9%.
So it’s pretty clear people aren’t moving for tax breaks.
Delaware has the lowest tax share for the middle 60% of filers…is it rapidly growing?
http://www.itep.org/pdf/whopaysreport.pdf
29. March 2015 at 13:16
Nick: why would millionaires be more incentivized to move for tax reasons? After all, they can afford the taxes better than the middle class. Especially if the taxes are on income, and they are already wealthy.
29. March 2015 at 13:17
Nick,
I don’t understand why you would conclude that if the tax burden on the top 1 percent in Texas is lower than in California, people, in aggregate, would not move to Texas because of taxes. The fact that Texas may have a regressive tax system does not mean that the median taxpayer pays more there (Texas has a lower median rate than the average US state).
Also, the fact that Texas has no income tax (corporate or individual) may have supply side benefits that account for moves to that state. Not surprisingly, any people tend to move where the jobs are. All other things equal, would you rather start (or expand) a business in Texas where there is no income tax, or in California?
29. March 2015 at 13:49
Putting supply side pixie dust aside, multiply taxes/GDP by taxshare…that tells you the difference in taxes owed. Furthermore, wages are generally lower in these states due to right to work for less laws, especially for skilled labor. Washington is a different case (kind of an odd duck).
You’re better off though in, say, Dallas or Austin if you’re an experienced software developer or something than you are in San Jose. But for the vast bulk, wages are lower and taxes are higher.
Note: I don’t think taxes are a statistically significant driver of state to state migration
29. March 2015 at 13:51
They’re not Luis. Nobody’s really incentivized based on personal income taxes.
A toothbrush manufacturer in Ohio might relocate to Texas because of attractive peasant wages, but that might be it
29. March 2015 at 14:07
Everyone, Please read my post more carefully. I did not offer any hypotheses about the effect of the overall tax structure on migration. Nor did I compare Texas and California. Many of these comments are by people with agenda’s who never even considered the arguments that I actually made. Are houses in Texas cheaper than Oklahoma?
Thomas, That’s a factor, but doesn’t explain why Texas and Tennessee do far better than their neighbors. Ditto for the other comparisons.
Zack, Good point.
Joe, But less than Washington.
And how do states with no income taxes collect income tax revenue?
Nick, You said:
“The total tax burden for lower and middle class workers is actually higher in most of these states you cite, so the data doesn’t fit.”
Obviously you don’t know what my hypothesis is, as this data point (which is completely false) has no bearing on it. My hypothesis had to do with income taxes, not all taxes.
You said:
“I presented CA and TX because the TX tax burden is extremely high for the median household, one of the highest in the country.”
Many people confuse “median household” with typical household. I have many posts pointing out that income distribution data is worthless, it doesn’t tell us what you think. The NYT says 73% of Americans spend some time in the top 20% of the income distribution. When people move they are interested in how the top 20% get taxed, not how the “median household” gets taxed. Like someone’s going to move to California because people making $38,000 don’t pay much tax.
You said:
“As Yglesias has argued, Texas really just benefits from weaker zoning laws…and building costs in general.”
All the other south central states have houses that are just as cheap as Texas, so that argument doesn’t explain anything in this post. You may have noticed that I didn’t compare Texas to California.
You said:
“Note: I don’t think taxes are a statistically significant driver of state to state migration”
You seem to believe in a mindbogglingly unlikely set of coincidences.
29. March 2015 at 14:28
SS,
Okay you’re being defensive and ridiculous. You said people migrating appear to “really, really” like no state income tax. In *all of these states, (excl. Alaska due to oil revenue) people are receiving “no income tax” in exchange for gargantuan property taxes and/or sales taxes. Is there something magical about income taxes? No, there isn’t. If you increase the cost of living via sales taxes, it’s no different than taxing their income.
Point #2. I’m not confusing typical and median. I’m looking at the middle three quintiles and share paid by top1%.
Maybe people listen to too much talk radio and are moving against their own better interests…who knows. But what’s more likely is that people move to where the calculation between good wages in their industry and the cost of living benefits them the most….and the weather.
And if you ask me, the weather in Louisiana sucks….not sure why anyone would move there for the weather…
29. March 2015 at 14:32
Nick, you seem to be assuming that people are making major decisions like moving to a different state based solely on their current income rather than expectations of future income. I guess this is part of where the disagreement is coming from.
Also, I’ve seen those ITEP reports before and I wouldn’t take anything they put out very seriously. They go through all sorts of bizarre twists and turns to deliberately make tax burdens at the bottom look higher and at the top as lower.
29. March 2015 at 14:39
Zack,
In general Tax burdens are much more regressive at the state and local level than the federal level…a state with no income tax has to be regressive.
And yes, people could certainly have really bad expectations of future income…maybe they all think they’ll strike it rich as a scab carpenter making $15 an hour in Dallas…who knows.
But what I do know is that its highly unlikely an entire population would move to a higher tax state because no income tax “sounds good”
29. March 2015 at 15:41
Nick Bradley does make an excellent point: people appear unaware of other taxes as opposed to the income tax, when they make a decision to move to a state. Or perhaps small employers choose to live in no income tax states, ergo people must migrate to work for the employers.
In Texas, it is true, you will pay property taxes and not only that, the assessor can reassess your land based on highest and best use at any time.You can be taxed right off your land, and that will never happen in California.
Still, to be fair, for a Third World nation Texas is near the top.
29. March 2015 at 16:01
Hi Benjamin,
They’re either unaware, or the null hypothesis is correct: no relationship between tax policy and migration
29. March 2015 at 16:34
Hey Einstein, South Dakota has no state income tax. I hear their winters are lovely… ridiculous, like monetarism itself.
29. March 2015 at 17:56
Nick, You think taxes only affect behavior in terms of how many dollars paid? I guess you’ve never heard of something called “supply-side economics.” You might check it out sometime.
Income quintile data is useless, as I’ve pointed out in many posts. I suggest you take a look.
And your claims about overall tax burdens were false.
If you want to go through life believing these amazing coincidences occur over and over again, all across the country, I guess I can’t stop you.
29. March 2015 at 18:04
Because I have nothing else to do, I found my old undergrad paper on interstate migration from a couple years ago. A few main points:
1. Of the 9 states with no income tax, 8 had net migration inflows in the previous decade. The lone exception was Alaska. The total net increase in these states was about 2.4 million
2. Of the corresponding 9 states with the highest marginal rates, 8 had net outflows. Oregon was the exception although it did have a relatively large loss to neighboring Washington which has no state income tax. The total net loss for these states was a little over 2.8 million (for some reason I included D.C. Not sure how much this would change if I used the next highest state instead).
3. For the majority of states which fall between the two extremes, I found no correlation. Some states that were somewhat on the higher side, like South Carolina, actually had large increases. Obviously people aren’t going to move from one state to another just to lower their marginal rate from 7% to 4%.
4. Reading my own writing makes me cringe.
29. March 2015 at 18:28
Nick Bradley,
You bring up an interesting point. It may be worth thinking about the effects of different taxes.
Property taxes, for instance, should be pretty much completely expressed in real estate prices. So, those taxes are completely paid by previous real estate owners, who would have earned less capital gains over the years. If rents are the same in two jurisdictions with different property taxes, real estate prices should be lower in the high tax state, to make net returns similar.
I suspect that this means that previous savings of potential new buyers is able to purchase more real estate in high property tax states. So, new real estate owners are enticed to those states. That would lead to more building. I think we would probably find that rents are higher and real estate prices are higher in the high income tax states Scott references.
Maybe high property taxes lead to a sort of regulatory arbitrage that entices existing savings that is searching for real estate.
29. March 2015 at 18:31
Couldn’t we test internal migration in states with pronounced climate variations? For example, northern vs southern Illinois?
Or compare regions in different states with the same climate but different tax regimes? Say northern Ohio vs northern Illinois?
As for the Yglesias argument, you can find housing in California just as cheap as in Texas, but it’s in the part of Cali that looks like Texas, not near the coasts.
29. March 2015 at 18:38
Let’s say there is a state where a house would capture $20,000 in rent per year, has no property tax, and sells for $200,000. Another state has a similar house with $20,000 rent, $2,000 property tax, and sells for $170,000.
Hmm. I don’t know. On second thought, I don’t know if I’m on the right track here.
29. March 2015 at 20:49
“Furthermore, wages are generally lower in these states due to right to work for less laws”
The south was generally poorer for most of history, I don’t think “right to work” can be blamed for this. Hell, if I recall correctly, even the liars at the EPI could only spin a 3% decrease in wages from RTW. Also, I’m going to assume you’re using nominal figures. Prices are lower in the south, so this is quite misleading.
29. March 2015 at 22:44
[…] Scott Sumner details the import of state income taxes. In my view not the “main” factor, but a significant factor nonetheless, excerpt: “On the […]
30. March 2015 at 03:10
Here’s a new economics blog:
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low
30. March 2015 at 06:39
@Nick bradley
Nobody’s really incentivized based on personal income taxes.
As a long-time tax lawyer I can tell you this is ludicrous, the funniest thing I’ll read all day.
So many people move from New York to Florida to escape state income taxes that New York State operates tax offices throughout Florida to catch them violating New York tax rules that apply to those who leave the state. As does California in Nevada.
Relocating – out of the city to escape city taxes, out of the state to escape state taxes – is of course just one the multitude of behaviors incentivized by personal income taxes. Another is paying tax lawyers enough to recommend more such behaviors to them that, parasite class though we be, we enjoy a pretty good living. “Nobody’s really incentivized based on personal income taxes.” Ha, ha, ha. 🙂
30. March 2015 at 07:33
As an empirical matter, who knows, but why the emphasis on personal income taxes rather than total taxes (compared to the services received)?
30. March 2015 at 07:48
“As a long-time tax lawyer I can tell you this is ludicrous, the funniest thing I’ll read all day.”
As a tax lawyer you have credibility saying that. I thought it was absurd too, but I learned to raise my eyebrow and often couch my opinions on this site. I myself was split between Kalorama in D.C. and Potomac in MD, back when rates were 4.8 vs 9.3%. My final decision was totally based on taxes and golf. For me it was a significant difference. Why give money away you don’t have to. That stuff compounds very nicely when you keep it for yourself.
30. March 2015 at 07:49
BTW, mocking “supply side pixie dust” is just as foolish. You don’t think businesses are incentivized to relocate and restructure-reorganize across borders (county, city, state, international) in response to taxes? Really???
When they do, what effect do you imagine it has on the locales they depart from/arrive in?
Take NYC here, when a greedy billiona1re or a big business with its entire cadre of well-paid HQ staff moves across the border to New Jersey (or a good deal further off for good deal lower taxes yet), how much does the average tax rate have to go up on how many average citizens to make up the revenue shortfall? How does that affect the rest of the economy?
If you don’t believe that happens, that businesses have an incentive to respond to taxes imposed on it and its people, especially its top people, look at the number of Fortune 500 companies that used to be located in NYC in its ‘pre-highest tax burden in the USA’ days and the number that are here now.
Or just look at the straight annual data. NYS is #1 in highest state tax burden on state residents, and #1 in highest total taxable income of individuals who migrates out of the state annually. What effect does that latter have on the state’s tax base and on the tax rates that must be imposed on the lower-income people who remain behind?
And upon employment, business growth, and other such ‘supply side pixie dust’ that have left the upstate regions, which don’t have NYC’s offsetting economic advantages, among the lowest-growth, economically stagnant regions in the entire US?
30. March 2015 at 10:19
Nobody’s really incentivized based on personal income taxes.
Data:
Taking for the year 2010 the average total state tax rate on individuals for each state (via the Tax Foundation) and each state’s net flow of Adjusted Gross Income into it from other states/out from it to other states due to individuals moving between states (via IRS Statistics of Income), and ranking each (from highest tax rate and largest outflow down), my spreadsheet gives me…
1) a 61% correlation between the two, plus a list on which
2) All 9 of the highest-tax states, and 12 of the 13 highest, have net outflows of income going with net departing former taxpaying residents, and
3) 14 of the 17 lowest-tax states have net inflow of incomes with taxpaying residents newly arriving from other states.
Quick and dirty, yes. Coincidence? Maybe, correlation of course does not prove causation.
Yet this eyeballs to be pretty significant, and suggests that anyone who believes taxes have *no* incentive effects on migration to support such a claim maybe has some ‘splaining to do.
30. March 2015 at 11:31
Jim Glass –
‘average total state tax rate on individuals for each state’ is not a meaningful or accurate figure…what are you averaging?
**If you wanted to really measure this, you’d look at all state-to-state migration and see if taxes paid by the median resident are higher or lower. That’s all you gotta do.
you didn’t do that.
30. March 2015 at 11:55
Jim Glass,
On the margins, corporations might find it worth it to move across a state boundary to save a little bit on taxes, but there’s a huge transaction cost in doing that, and the people in their company might not want that.
I mock the church of supply-side because its a joke — there is no shortage of capital, and interest rates are at an all-time low. There are no incentives to change on the supply-side — we’ve generally fixed all of our supply-side problems and we just have a gigantic demand-side problem.
30. March 2015 at 12:26
Nick,
You are obviously wrong because what matters is not the tax rate to the “median resident” but the tax rate to the immigrating or emigrating resident (now and in the future, if you could know that).
There is no reason whatsoever that median tax rate should be a better measure than average tax rate, which is what was provided. Maybe it is time for you to either produce some evidence to contradict the strong evidence produced by others, or change your beliefs which are apparently fantasy-based.
30. March 2015 at 12:27
Nick Bradley,
They might and they do, to save “a little bit” or a lot.
30. March 2015 at 15:05
You know what would make this more useful? Linking tax rate to unemployment rate and unemployment rate to internal migration. Just a thought.
30. March 2015 at 15:33
… If you wanted to really measure this, you’d look at all state-to-state migration and see if taxes paid by the median resident
Nick, the people who are most incentivized by a tax to change their behavior are those who most feel the tax. If you don’t understand this, well then that explains your opinion of how incentives don’t matter.
The fact is that the states that impose the highest personal tax rates have the highest outflow of taxable income with departing residents, and the states with the lowest personal tax rates have the highest inflow of taxable income with newly arriving residents. Deal with it.
On the margins, corporations might find it worth it to move across a state boundary to save a little bit on taxes, but there’s a huge transaction cost in doing that
Nah, again you miss the obvious. Businesses are dynamic entities. There is very little cost to a business in choosing to expand operations in low-tax states and contract in high-tax states steadily over time, and there is substantial cost in *not* choosing to do so. (Perhaps you’ve noticed the relocation of the prosperous and thriving side of the US auto industry over recent years?)
Also, do you really think that it is *so* traumatic and onerous for a business to relocate from NYC across the river to New Jersey to escape NYC taxes on both itself and its employees, and that its employees object so loudly to escaping that tax when it does, or similarly for a firm from California moving all the way across the border into Nevada?
Moreover, there’s very little cost in legal restructurings to move tax liabilities from high-tax to low-tax states, e.g. having the business’s income-earning IP rights held by a Nevada member of a corporate group.
You’re not even up on your own political side’s progressive outrage over how much of all this is going on so readily all the time costing the govt so much revenue, check out “corporate inversions”.
The idea that “Nobody’s really incentivized” by taxes to change behavior is the funniest thing that I’ll hear all week, I’m sure, and it’s only Monday. What incentivizes people to pay me enough to enable me to pay my kids’ college costs?
30. March 2015 at 16:18
Note that Washington State has a per employee business and operations (B&O) tax. Call it an employer paid income tax that is roughly comparable to Oregon and California. But the employee doesn’t see it. So a number like to live across the border from Portland, work in WA, shop in OR (where there’s no sales tax).
30. March 2015 at 16:24
Jim Glass- lots of good points in your posts, especially your last one.
Nick Bradley- from a supply-side perspective, some taxes create much bigger distortions than others. Also, marginal rates are at least as important as average rates if not more so. Citing the average total rate paid by the median resident as you keep doing is not really relevant.
30. March 2015 at 16:30
I figure “hot and sunny” WA and AK is a joke. My visits to Boeing (before they moved HQ to Chicago where they had a congressional delegation that was both powerful and in power) was entertaining – news weather-folk 300 out of 365 days would say “there may be some sun-breaks today!”
30. March 2015 at 20:34
Also, it should be noted that the ability to deduct state and local taxes from federal taxes owed acts as a type of subsidy, dampening the total tax burden of those in high-tax states. If this subsidy were removed from the federal tax code, the difference between states with high income tax rates and no income tax would become even more obvious and there would be an increase in the marginal propensity to relocate to a state with no income tax.
See Figure 1 from this Mercatus Center paper;
http://mercatus.org/publication/deduction-state-and-local-taxes-federal-income-taxes
All the states with high income tax rates have the largest deductions for state and local taxes (expressed as a percentage of AGI per capita). The states with no income tax are clustered near the bottom.
30. March 2015 at 22:44
“Non-American readers should know that South Dakota offers NOTHING.”
http://www.visitrapidcity.com/things-to-do/top-10-lists
Give it 30 years…the next Denver.
31. March 2015 at 05:09
Ari, Are you sure it’s “per employee”? That seems incredibly regressive. Bill Gates pays the same tax as a McDonalds worker?
31. March 2015 at 08:09
Don’t get too high on Washington taxes; they’re some of the most regressive in the country. Sales taxes assessed on the sale of used vehicles? Excise taxes on the sale of used homes? Throw in B&O taxes, utility taxes, steep vehicle licensing fees in place of gas taxes, and business licensing and you’ve got a collection of gotchas that have nothing to do with the actual burden people put on the state and economy. Yuck.
31. March 2015 at 08:36
… the ability to deduct state and local taxes from federal taxes owed acts as a type of subsidy, dampening the total tax burden of those in high-tax states.
Yes, and it is also regressive in that one must be among the highest-income taxpayers to itemize deductions and take it, and the higher one’s income is the more the deduction is worth.
The insincerity of the “tax the rich” politicians, at least here in NYS, about really taxing the rich is very clearly demonstrated every few years when a movement starts in other states to very sensibly eliminate this deduction. One of the justifications used by progressive supporters of this reform is that it is a very common sense way to increase taxes on the rich, make them pay their fair share. Why should the rich get a deduction for taxes they pay that the nobody else gets?
Immediately the entire NYS body of liberal politicians, Schumer and the rest, all stand up proudly and loudly as one and declare “No! No! Never”, and unite with their fellow liberal politicians in high-tax Massachusetts, California, etc. to kill the proposal dead. Then, the prospect of actually increasing a tax the rich being buried, they safely go back to indulging their anti-Top 1%, tax-the-rich rhetoric, for political fun and profit.
31. March 2015 at 09:34
“…and the higher one’s income is the more the deduction is worth.”
Technically true; however, eventually, the higher one’s income, the less one’s deduction. I’m talking about the Pease phaseout which starts at about $300K for joint filers. The maximum disallowance is 80 percent of itemized deductions. So, if we assume that the average federal marginal rate is 40 percent, those pre-phaseout state and local tax deductions are offset federal tax at an effective rate of about 8 percent. Itemized deductions are essentially a middle class taxpayer benefit.
31. March 2015 at 12:15
Two fantastic papers by Prof. Sumner that I hadn’t read before:
http://econjwatch.org/articles/ideological-differences-in-economics-why-is-the-left-right-divide-widening
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1629940
31. March 2015 at 12:27
I am moving from Upstate NY to Northern Maryland. The property taxes are about 1/3 in Maryland for the same house , income taxes and sales taxes are a little less. Delaware has no property or sales tax. When you have kids in NY, the biggest tax by far is the real estate tax. For Krugman to say its all about the weather is laughable. Yes, air conditioning makes the deep south livable just like natural gas heating makes life in upstate ny livable…if I had to cut 30 cord of firewood and keep the fires burning all winter to live in NY..it might be on equal footing with the south without air conditioning..
2. April 2015 at 08:56
This state comparison feels a little to basic to prove anything. The changes in population is simply an economic boom and for most of the 00 – 10 Nevada was especially in boom times. If we did the analysis today (2010 – 2015), we would probably find the state with highest population is North Dakota which of course had its highest census population total back in the Hoover administration. (It has passed that total.)
The movement of people in the US is one of the reasons for the stronger growth than Europe or Japan since The Great Recession.
2. April 2015 at 17:21
Randomize, When there is no state income tax, all else is forgiven.
Jim Glass, Excellent post.
Vivian, Whoever invented phaseouts should be tortured and then shot.
Collin, No single state is significant, but the pattern is an AMAZING COINCIDENCE.
3. April 2015 at 09:33
“Whoever invented phaseouts should be tortured and then shot.”
You are too late. Donald J. Pease died in 2002 of a heart attack.
But, in fairness to the late Congressman Pease of Ohio, and with due respect to his survivors, perhaps you should locate the person who invented the itemized deduction, without which there would be no need or even argument for any phaseout. Some would even argue he reduced federal spending on the wealthy. The history of the itemized deduction can be traced back to 1942 when a deduction was allowed for medical expenses exceeding a certain threshold. FDR called this the “greatest tax bill in history”. That framework was predictably expanded over the next few decades.
3. April 2015 at 14:28
Vivian, Thanks for that history. And you are right, itemized deductions are a bad idea. But phaseouts are even worse, lacking ANY justification.
3. April 2015 at 23:24
– Nevada is doing better because corporate taxes are much lower than in California.
– New Hampshire is doing worse because it’s located in the cold North East.
4. April 2015 at 09:35
Willy, Wasn’t New Hampshire cold 20 or 30 years ago, when it was booming?