800,000 people are about to flee New York and California because of taxes, say economists

[Anonymous]

So Long, California. Sayonara, New York

Blue states will lose millions of people in the years to come—and they aren't ready.



By Arthur B. Laffer and Stephen Moore

The Wall Street Journal

April 24, 2018 7:18 p.m. ET



As the Trump tax cut was being debated in December, California's Gov. Jerry Brown called the bill "evil in the extreme" and fumed that it would "divide the hell out of us." He's right—but in the end, this change could be good for all the states.



In the years to come, millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states. This migration has been happening for years. But the Trump tax bill's cap on the deduction for state and local taxes, or SALT, will accelerate the pace. The losers will be most of the Northeast, along with California. The winners are likely to be states like Arizona, Nevada, Tennessee, Texas and Utah.



For years blue states have exported a third or more of their tax burden to residents of other states. In places like California, where the top income-tax rate exceeds 13%, that tax could be deducted on a federal return. Now that deduction for state and local taxes will be capped at $10,000 per family.



Consider what this means if you're a high-income earner in Silicon Valley or Hollywood. The top tax rate that you actually pay just jumped from about 8.5% to 13%. Similar figures hold if you live in Manhattan, once New York City's income tax is factored in. If you earn $10 million or more, your taxes might increase a whopping 50%.



About 90% of taxpayers are unaffected by the change. But high earners in places with hefty income taxes—not just California and New York, but also Minnesota and New Jersey—will bear more of the true cost of their state government. Also in big trouble are Connecticut and Illinois, where the overall state and local tax burden (especially property taxes) is so onerous that high-income residents will feel the burn now that they can't deduct these costs on their federal returns. On the other side are nine states—including Florida, Nevada, Texas and Washington—that impose no tax at all on earned income.



Since 2007 Texas and Florida (with no income tax) have gained 1.4 million and 850,000 residents, respectively, from other states. California and New York have jointly lost more than 2.2 million residents. Our analysis of IRS data on tax returns shows that in the past three years alone, Texas and Florida have gained a net $50 billion in income and purchasing power from other states, while California and New York have surrendered a net $23 billion.



As far as we can see, the only way for blue states to prevent this coming fiscal bloodbath is to start taking tax and to cut their tax rates in response. Progressives should do the math: A 13% tax rate generates zero revenue from someone who leaves the state for friendlier climes.



Blue states ought to be able to lower their taxes and spending dramatically without jeopardizing vital services. Despite its shrinking tax base, New York spends nearly twice as much on state and local government per person ($16,000) as does economically booming Tennessee ($9,000).

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No surprise here. When Alberta had low taxes, was  deficit and debt free they attracted a lot of talent and capital from the rest of Canada. This article focused on the rich, but highly skilled workers and entrepreneurs are more likely to move.

[Bricktop]

I have been to America...when we flew over, I didn't see any red or blue countryside. It was pretty much all the same colour.

[Anonymous]

The Top Four Reasons California Is Unsustainable



California's Infrastructure Deficit.

That vast State Water Project was designed for a population not much greater than 25 million.  Today, on any one day, California verges on nearly 40 million people within its borders and is projected to reach 50 million if not higher.



According to a 2017 infrastructure report card:



"Driving on roads in need of repair in California costs each driver $844 per year, and 5.5% of bridges are rated structurally deficient. Drinking water needs in California are an estimated $44.5 billion, and wastewater needs total $26.2 billion. 678 dams are considered to be high-hazard potential. The state's schools have an estimated capital expenditure gap of $3.2 billion."



In 2017, California's Governor Jerry Brown estimated California was "facing $187 billion in unmet infrastructure needs."  However, the Bay Area Council Economic Institute "pegs the cost of California's unfunded infrastructure needs at up to $737 billion and possibly as much as $765 billion."  Who is right?  It's hard to know but all of those figures are more than daunting.



Government Debt.

How much in debt are the California governments?  That's hard to know too.  According to a January 2017 study, "California state and local governments owe $1.3 trillion as of June 30, 2015."  The study was based on "a review of federal, state and local financial disclosures."



In other words, that $1.3 trillion in debt is the amount to which California governments admit.  Other studies believe it to be more.  Indeed, one study says it is actually $2.3 trillion and a recent Hoover Institute stated that there is over $1 trillion in pension liability alone, or $76,884 per household.  Incredibly, there are 4 million current pension beneficiaries, a number that continues to grow and which exceeds the total population of 22 states.



What's the right number?  Apparently, it is so large it is hard to accurately estimate.  In every case, the number is staggering.



California's Taxes and Regulations.

When you consider the California legal system and its regulatory system, inclusive of the world's most comprehensive global warming law, California is likely the most regulated state in the Country, if not the World.



California also is among the highest taxed states in the nation.  California has the highest income tax rates.  The top rate is 13.3%. The next closest top tax rate is in Oregon at 9.9%.  However, Oregon does not have a sales tax. California has the 10th highest sales tax.



What is remarkable about the California income tax isn't just that it has the highest rate, it is how little income it takes, just above $52,000, to qualify for California rate of 9.3%.  Given the high cost of living in California, that means many Californians are subject to that rate.



On the other hand, for more than a decade, less than 150,000 of California's 35+ million people pay half of all of its income tax – a highly imbalanced system.



Now, many might think California needs all of those taxes given its infrastructure deficit and debt.  The problem with that notion is that those prolonged high taxes, debt burden and regulations limit California's economic future. After all, why would businesses locate in California in the future with the impending tax-aggeddon that must be in the offing?



Also, California's middle class has been hollowed. A recent CNBC headline read: "Californians fed up with housing costs and taxes are fleeing state in big numbers."  Where are they going?  Many have left for low tax states offering more jobs than California.



They have been replaced by those taking advantage of California's magnet government policies, which increase California's long-term spending needs. For those that remain, according to Smartasset.com "California has the highest debt-to-income ratio in the country."



Little wonder, the demographer Joel Kotkin concluded that "the state is run for the very rich, the very poor, and the public employees." It is also how California found itself with the worst poverty problem and why "California ranks dead last among U.S. states in quality of life, according to a study by U.S. News."



All of which brings us to the number one reason California is not sustainable.



The California Governments.

You would think all of the above would have government officials deeply worried. So much so that they would cut back everywhere they could.  If you thought that, you would be wrong – very wrong.



California spends nearly $200 billion a year on budget and even more off-budget in the form of programs paid with bonds, i.e. debt financing. As for the pension debt, of that nearly $200 billion, in the most recent budget less than $2 billion was allocated to paying down that pension debt.  More than that was spent this year on a high-speed rail project currently estimated to cost $70 billion and which no one seems to want.



Beyond that, as I wrote earlier, California is moving ever farther left and wants the nation to pay for it. The next generation of leaders, Gavin Newsom, Kevin de Leon, Xavier Becerra and Kamala Harris are significantly to the Left of the old (and "conservative" by comparison) Jerry Brown and Diane Feinstein. That new generation of leaders are supported by an influx of friendly voters who are replacing those that are leaving.



All of those leaders support the dozens of lawsuits brought by the Democrat Attorney General Xavier Becerra against the Trump Administration. Many describe those lawsuits as part of California Democrats resistance movement – a resistance designed to result in political gains more than policy benefits.



Gavin Newsom, Kevin de Leon, Xavier Becerra and Kamala Harris also support some form of significantly expanded healthcare benefits if not universal healthcare – which is estimated to cost as much as $400 billion a year (that is not a typo). All of them support the California magnet policies that attracted so many of those in California illegally. In fact, there is no indication that the next generation has any concern for the future debt.  Instead, they support higher taxes.



What taxes will those be?  Within a decade you can expect higher income taxes and sales taxes.  There is always a movement afoot to do away with California's landmark property tax protection known as Prop 13.  You also can expect a service tax – a tax on lawyers and accountants as well as hairdressers and gardeners. That service tax would be on top of the existing income tax.  Beyond all of that, sooner or later an asset tax will be proposed.  California counties already collect an asset tax on businesses.  Look for that to be proposed statewide as California lurches ever farther to the Left and if forced to confront future debt.



Is there a silver lining in this story?



If you are living in one of the 49 other states, you should learn from the lesson that is California.  If you are living in California, there is always the lesson of how Michigan came to be governed by a more centrist government.  Of course, that came after the failure of the prior government. For now, however, for all its concern for sustainable foods and products, California is on a high-speed rail to unsustainability.

[Anonymous]

I have been to America...when we flew over, I didn't see any red or blue countryside. It was pretty much all the same colour.

I really like Florida. There is no state income tax. Besides the weather, the sunshine state offers good beaches, great golf courses, and terrific cuisine. Two downsides are hurricanes and overpopulation. All those refugees from high tax New York and California.

[Anonymous]

I have been to America...when we flew over, I didn't see any red or blue countryside. It was pretty much all the same colour.

I really like Florida. There is no state income tax. Besides the weather, the sunshine state offers good beaches, great golf courses, and terrific cuisine. Two downsides are hurricanes and overpopulation. All those refugees from high tax New York and California.

I'm guessing Florida doesn't have carbon taxes on everything either.

[cc]

I believe taxes are minimal if at all



Lived 4 years in Florida ... small city on Gulf Coast ... the "good" coast



That was some time back, but even then over that time period we could feel the changes as more and more came to live there



I would imagine and hear that "desirable areas" have become quite crowded now .. and Crackers are few and far between today .. . most likely moved back inland



Sure did love the Crackers  .. wonderful, hard working and fun folk ... eager and proud  to teach us local ways ... like night fishing  ... netting prawns and crab and immediately cooking on the oil lamps used to be able to see ... catching big fish at night



We were part of construction of several golf courses and played a lot ...  but I'm guessin there's no more singles or even couples play anymore, rather reservation only and foursomes  wall to wall (the reason my mate with the fun to watch purrfect classic swing stopped golfing completely)

[Wazzzup]

I have been to America...when we flew over, I didn't see any red or blue countryside. It was pretty much all the same colour.

I really like Florida. There is no state income tax. Besides the weather, the sunshine state offers good beaches, great golf courses, and terrific cuisine. Two downsides are hurricanes and overpopulation. All those refugees from high tax New York and California.

I'm guessing Florida doesn't have carbon taxes on everything either.

We have gas taxes, but no carbon tax per se in the U.S.  Its one of the few stupid lefty ideas that didn't catch on here, thankfully.

[Anonymous]

I believe taxes are minimal if at all



Lived 4 years in Florida ... small city on Gulf Coast ... the "good" coast



That was some time back, but even then over that time period we could feel the changes as more and more came to live there



I would imagine and hear that "desirable areas" have become quite crowded now .. and Crackers are few and far between today .. . most likely moved back inland



Sure did love the Crackers  .. wonderful, hard working and fun folk ... eager and proud  to teach us local ways ... like night fishing  ... netting prawns and crab and immediately cooking on the oil lamps used to be able to see ... catching big fish at night



We were part of construction of several golf courses and played a lot ...  but I'm guessin there's no more singles or even couples play anymore, rather reservation only and foursomes  wall to wall (the reason my mate with the fun to watch purrfect classic swing stopped golfing completely)

I liked the Keys despite being like San Fran. Lifestyle was like the Caribbean.



I had an aunt and uncle who used to live near Fort Myers in the winter. I would imagine it's a lot more crowded now. The traffic must be insane across the state now.

[Anonymous]

I have been to America...when we flew over, I didn't see any red or blue countryside. It was pretty much all the same colour.

I really like Florida. There is no state income tax. Besides the weather, the sunshine state offers good beaches, great golf courses, and terrific cuisine. Two downsides are hurricanes and overpopulation. All those refugees from high tax New York and California.

I'm guessing Florida doesn't have carbon taxes on everything either.

We have gas taxes, but no carbon tax per se in the U.S.  Its one of the few stupid lefty ideas that didn't catch on here, thankfully.

We have provincial and federal gas taxes and provinces like Alberta and BC have a carbon taxes on top of both of them. Trudeau wants to make the gouging mandatory federally. Our province is pushing back. We'll soon have help from Ontario and Alberta if Ford and Kenney are elected.

[Anonymous]

I believe taxes are minimal if at all



Lived 4 years in Florida ... small city on Gulf Coast ... the "good" coast



That was some time back, but even then over that time period we could feel the changes as more and more came to live there



I would imagine and hear that "desirable areas" have become quite crowded now .. and Crackers are few and far between today .. . most likely moved back inland



Sure did love the Crackers  .. wonderful, hard working and fun folk ... eager and proud  to teach us local ways ... like night fishing  ... netting prawns and crab and immediately cooking on the oil lamps used to be able to see ... catching big fish at night



We were part of construction of several golf courses and played a lot ...  but I'm guessin there's no more singles or even couples play anymore, rather reservation only and foursomes  wall to wall (the reason my mate with the fun to watch purrfect classic swing stopped golfing completely)

What a way to live and what a place to live.

[cc]

It was wonderful at the time. We also got a 27 ft sport fisherman boat (a nice cruising ship with large open area at the back but covered driver area with sleeping / kitchen cabin up front .. a type of craft common to the the area) and cruised up and down the inter-coastal  ... spent many nights anchored. The intercoastal is the protected waters inside the keys, each key several  miles long with narrow openings here and there between different keys to the open Gulf. Once took it to Tampa Bay well to the north. Stayed in the safer protected waters behind keys most of the time ... especially with kids on board



Someone mentioned Ft Myers on the Gulf ... we lived  north of it (Sarasota) and did projects in it and further south  .. one well south on the edge of the everglades ... Rotonda housing and golf project



But, towards the end of our time there we could feel the influx of people growing steadily .. changing it even over the span of 4 years



Our time there before the "real" influx we will never forget. I'm guessin its pretty full of people now with land costs quite high accordingly.

[cc]

We had bought a lot on the man-made areas along the shore (drive to front by car, have boat in backyard on man-made  channels like streets for boats   that lead to inter-coastal waterway  ... designed a house and had permit to build .... idyllic way to live in theory but a hurricane taught us how much the waters rise ahead of the storms flooding houses that were low to the water..  so we called it off and sold the lot.



Nirvana had the potential ... or even the  likelihood to turn into Hell very quickly



Between the  ever-present potential devastation along with the feeling of approaching over-crowding,  we came to realize that it wasn't as good as it had initially looked ...  causing us to eventually return to Canada



Certainly the Gulf side is a much more low key / relaxed  lifestyle than the Atlantic side. We really liked its flavor .. and especially before  the population increase became great

[Anonymous]

It was wonderful at the time. We also got a 27 ft sport fisherman boat (a nice cruising ship with large open area at the back but covered driver area with sleeping / kitchen cabin up front .. a type of craft common to the the area) and cruised up and down the inter-coastal  ... spent many nights anchored. The intercoastal is the protected waters inside the keys, each key several  miles long with narrow openings here and there between different keys to the open Gulf. Once took it to Tampa Bay well to the north. Stayed in the safer protected waters behind keys most of the time ... especially with kids on board



Someone mentioned Ft Myers on the Gulf ... we lived  north of it (Sarasota) and did projects in it and further south  .. one well south on the edge of the everglades ... Rotonda housing and golf project



But, towards the end of our time there we could feel the influx of people growing steadily .. changing it even over the span of 4 years



Our time there before the "real" influx we will never forget. I'm guessin its pretty full of people now with land costs quite high accordingly.

Travelling in the open Gulf must have been a hoot. I'd love to do that.



I hate to see Florida have all the problems with overpopulation. But, I can't blame people for wanting to move there.

[Anonymous]

We had bought a lot on the man-made areas along the shore (drive to front by car, have boat in backyard on man-made  channels like streets for boats   that lead to inter-coastal waterway  ... designed a house and had permit to build .... idyllic way to live in theory but a hurricane taught us how much the waters rise ahead of the storms flooding houses that were low to the water..  so we called it off and sold the lot.



Nirvana had the potential ... or even the  likelihood to turn into Hell very quickly



Between the  ever-present potential devastation along with the feeling of approaching over-crowding,  we came to realize that it wasn't as good as it had initially looked ...  causing us to eventually return to Canada



Certainly the Gulf side is a much more low key / relaxed  lifestyle than the Atlantic side. We really liked its flavor .. and especially before  the population increase became great

Yep, I know the type of houses with channels for backyards. Seems near perfection, but overcrowding and especially mother nature can make it a nightmare.

[cc]

We took the channel at the end of Longboat key into the open  Gulf only once. Took it at slow tide flow, so no fast flow problem  .. . spent a few hours hours fishing, eating and lounging around a couple of miles offshore.



Then our Cracker friend spotted 3 huge waterspouts that looked not too far off and moving around fast. Knowing that they rarely reach shore was not enough for us .. we quickly lifted anchor and headed for the opening at the other end of the key.



By then flow to fill the inter-coastal was at max  .... thus we went through the narrow opening at very high speed often having to use reverse (thus having to use  with "unnatural" reverse steering for the first time under speed)  ... a learning experience that worked out OK. Got through OK but felt very lucky. Didn't stay out in the Gulf for long periods after that ... always  keeping tabs on tide flow speeds so as to be able to get back inside without so much drama



There's tricks to everything and not something for those who don't understand how the tide changes make the water move VERY fast "at times" through the narrow channels between keys .. . it's easy maintaining control going into the flow as one merely adds more power to move forward ... but running with it when it is fast  is a whole other thing

Seems near perfection .... mother nature can make it a nightmare.

Ya, all those homes on the "water roads" (idyllic when things are normal) are ALL vulnerable to tides ahead of hurricanes .. . water seeks its own level and a rising tide moves very fast and mercilessly ahead of the source .. just a case of luck of the draw how high waters get in any given area

Mother nature is often very unforgiving.