How State Income Taxes May Be Redrawing the Population Map
by Teresa Ambord on
By Teresa Ambord
Not many political potatoes are as hot as taxes. Whatever your opinion about state and local taxes, it's prudent now and then to gauge how the prevailing rates affect a state's fiscal health overall.
Pro golfer Phil Mickelson was criticized earlier this year for saying because of California's latest tax hikes, he might take his wealth to Florida where there's no state income tax. Years ago, Tiger Woods did exactly that. Most people are less vocal about their intentions. They just take their money and move.
With many states straining to balance their budgets, maybe the powers that be need a reality check to see what's working and what isn't.
A study by the Tax Foundation (a Washington, DC-based taxpayer advocacy group) shows that money is migrating out of New York State faster than a "New York minute." The study looked at data from tax returns filed in 2000 to 2010. During that time, the Big Apple has had a major bite taken out of it, to the tune of $45.6 billion in personal income.
So where did all the money go?
Mostly Florida. During the same period, Florida had a net gain of $67.3 billion, of which $13.3 billion was attributed to former New Yorkers migrating south. Arizona had a net gain of $17.7 billion in personal income, and Texas, $17.6 billion. Skeptics might say the migration of taxpayers had more to do with the warmer temperatures in those states than the favorable tax climates. But . . . not so fast. The study showed that after Florida, the second greatest siphon of money from New York was New Jersey ($8.6 billion), and after that, Connecticut ($4.2 billion). Both of those states are on the high tax list, but lower than New York.
Property Tax a Dream Killer
It's a shame when property tax forces people out of their homes. Mayor James "Sonny" McCullough of Egg Harbor Township, New Jersey, and his wife thought they'd live in their Seaview Harbor home forever.
They bought the home in 1985 for $360,000. Last year, during a township-wide revaluation, the property value was set at just over $1.1 million. The bump in value caused the couple's property tax to rise 60 percent, to $31,056.
The McCulloughs are hoping to find a more affordable home in the township. But if they don't, they already own a $150,000 waterfront condominium in Florida, with property tax of $2,569.
New Jersey's property taxes are the highest in the nation, with the average bill – before tax credits – at $8,000. Most of the property taxes go to local schools.
California has also lost a sizable chunk of personal income, $29.4 billion to be exact. California has twice the number of residents as New York, so possibly the per capita income leaving the state is much lower than in New York. Of course, the data reviewed doesn't encompass the last couple of years when California significantly raised its state income tax rates. Current figures, if available, might tell a different story.
A recent review of IRS data from 1040 forms filed in 1995 through 2010 showed a clear pattern of people moving to states with lower personal income tax rates, especially those with no tax. Based on the data provided, author Travis H. Brown wrote How Money Walks, depicting how adjusted gross income (AGI) has shifted around the country.
In an interview on CBN News, Brown said, "We're talking not about a survey, not a sample, not a focus group. We're talking about actual results of people's gross income."
Turns out when it comes to taxes, less is more. Here are some of the conclusions drawn from the study. Keep in mind, the latest data used is from 2010. In the years since, many states have raised or lowered their tax rates, but those changes aren't reflected here:
- Collectively, the nine states that have no personal income tax – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming – gained $146.2 billion in AGI.
- And collectively, the areas with the highest personal income tax – California, Hawaii, Oregon, Iowa, New Jersey, Vermont, New York, Maine, and Washington, DC – lost $107.4 billion AGI.
- Looked at another way, the ten states* with the lowest per capita state and local tax burden netted an increase of $69.9 billion in AGI. The ten states** with the highest state and local tax burden per capita lost a whopping $139 billion in AGI.
Texas and Florida have been magnets for newcomers for a while, as people flock there for taxes, climate, and other reasons. But Tennessee may be the best-kept secret of states that attract new residents. To many retirees, eastern Tennessee atop the Cumberland Plateau has become a haven of scenic beauty and lower taxes.
In the CBN News interview, retirees Dennis Shaw and his wife, Karen, said they left the high cost DC suburbs to live in eastern Tennessee. Shaw told reporters, "When I left there, I was paying $4,000 a year in taxes, and when I moved down here my taxes went to $750."
Arguably, for people like the Shaws, the tax burden is part of the decision to leave their previous homes, and climate and scenery are also factors. Critics of lower tax maintain that people move for jobs, cheaper housing, climate . . . not for taxes. In How Money Walks, Brown agrees that it would be a stretch to say taxes are the sole reason for the outflow of money from areas like New York and California. "I'm not drawing a causation about migration and taxes, but there's an undeniable correlation here."
He added that while many may move based on the ability to buy a home for less in a place like Tennessee, the price of the house is less important than the cost to maintain the house, including property tax. This is especially true for retirees who may purchase their homes outright, but still be concerned about outrageous property tax.
"People move for a variety of reasons," agrees CPA Robert A. Raiola, head of the Sports & Entertainment Group for the New Jersey-based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC. "Taxes may or may not be a significant factor in the decision where to live, but it has to be an important part of the equation. Ignoring the tax picture could alter your lifestyle and possibly your financial security."
Whatever your beliefs about tax policy, dramatic shifts of income should be hard to ignore, though so far, some governors do seem to be ignoring or openly denying the relationship. New York has had well-publicized financial struggles in the past, and California, now with the dubious distinction of having the nation's highest state income tax rate, seems to be walking a fiscal fine line.
Something to think about?
*Alaska, South Dakota, Tennessee, Louisiana, Wyoming, Texas, New Hampshire, Alabama, Nevada, and South Carolina.
** New York, New Jersey, Connecticut, California, Wisconsin, Rhode Island, Minnesota, Massachusetts, Maine, and Pennsylvania.
AccountingWEB Reader Insight Survey
Once a year, we ask our readers to take a few minutes of their time and complete our reader survey.
Our goal is simple. We want to learn more about you so we can better meet your needs.
As a thank-you for taking the survey, we're offering a free download of the AICPA's whitepaper Accounting Services: Harness the Power of the Cloud. Inside, you'll gain the latest insights into how technology is changing the accounting profession.
You may like these other stories...
Lois Lerner isn’t a Superwoman, but she’s showing at least as much resilience as Lois Lane.A new report released on March 11 by the House Committee on Oversight and Government Reform, one of several government...
Each tax-filing season poses different challenges for small business owners – from understanding the new tax laws and regulations to preparing new forms and disclosures.But according to Kevin Anderson and Doug Bekker,...
In Denver, state legislators are probably thinking, "Why didn't we think of this earlier?" The state of Colorado's retail marijuana sales (separate from medical marijuana sales) in January alone generated...
Upcoming CPE Webinars
BAR is an acronym for: Boundaries, Authority and Role. This simple tool will provide participants with a solid understanding of leadership essentials to improve their performance.
This material is designed to provide a start-to-finish overview of how to plan and complete high-quality small audits efficiently.
In this session Excel expert David H. Ringstrom, CPA shares numerous techniques that you can use to work with charts more efficiently.
Key Accounting and Reporting Issues for Nonprofits No. 1: Overview and Statement of Financial Position
This material focuses on non-profit organizations organization, accounting and reporting.