Blue states take note — residency may crater as state taxes rise

Blue states take note — residency may crater as state taxes rise
© Hill Photo illustration/Garrett Evans

Egads! Have you heard the terrible news? President TrumpDonald John TrumpGiuliani says he is unaware of reported federal investigation Louisiana's Democratic governor forced into runoff Lawmakers focus their ire on NBA, not China MORE’s tax cuts are having an unexpected effect for residents in many states: Families’ state income tax burden is going up. It’s not due to a loophole but, instead, is a result of the 2017 Tax Cuts and Jobs Act. Resulting action by state governments represent a microcosm of how the major parties view the role of government, with blue states choosing to squander the revenue and red states returning the money to those who paid in.

For the 41 states that collect income tax, the new federal law creates a unique issue. Congress cut federal tax rates across the board but also removed a number of loopholes, making more income eligible for taxation at the state level.

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The pernicious issue is acting as a mirror for the priorities of state governments. Republican lawmakers are using this opportunity to lower tax burdens on most working families — Georgia, Iowa and Idaho have already passed tax cuts. Meanwhile, in many cases, Democratic lawmakers are doing the opposite — Vermont's legislature passed a tax increase, Massachusetts increased spending, Virginia Dems want to jack up Medicaid sending, and Minnesota is considering a chimeric mix of tax increases and cuts.

The great Blue State exodus is already upon us, and these actions will only expedite the trend. So here's a tip to the growing red states: Prepare your own wall for the coming economic migrants, or a civics class to prevent them from voting the same way that destroyed their states of origin. You’ll need it.

In contrast with their blue neighbors, Republican-dominated states are using the newfound cash to foster economic growth and improve their tax competitiveness — and the results are already showing. Georgia flipped from having the nation's 17th to 11th least oppressive tax burden. Meanwhile, Iowa's newly passed package will send back $2 billion to taxpayers over the next six budget years.

Already-growing states are due to keep growing while laggards will fall further behind. And that’s more than just economically. States with the highest outward migration rates — California, Illinois, New York — are cratering. Numbers don’t lie. Georgia is already a destination for internal moves. More people moved to Texas last year than any other state. Arizona, Nevada, Idaho and South Carolina are also receiving high numbers of domestic migrants.

States that keep extra revenue out of the hands of taxpayers — either by funneling it into the general fund or spending it on welfare — will hemorrhage middle-class residents seeking a more affordable lifestyle. States losing the highest proportion of middle-class families attempt to make up for the losses with even more tax increases.

It adds up: 190,000 people left New York in 2017. A million total left California from 2007-2016. So many have left Illinois it dropped from the fifth most populous state to the sixth.

States with the highest welfare spending rates correlate strongly with the largest out-migration. Just compare welfare expenditures to the out-migration rate per 1,000 of each year. Leading the pack? Massachusetts with $2,700 per capita (-3.4 rate). Connecticut with $2,100 per capita (-6.2 rate), California with $2,600 (-3.5 rate), and New York with $3,100 (-9.6 rate!). Illinois, which spends less on welfare but taxes more, has a cratering 8.9 residents per thousand leaving annually. Even growing states like Washington and Oregon have caught Sacramentitis and are sharply increasing their dole-funding.

None of these figures are sustainable. A toxic mix of political dysfunction, steadily higher state and local taxes, and increased social spending act as a vice on middle- and working-class families. These families typically earn too much to receive benefits and get stuck with a higher property and income tax bill.

Growing families see the squeeze on the middle class. That’s why they’re leaving high tax states in droves. California is a place with perfect weather, scenery and abundant natural resources. It also has among the worst roads, the steepest tax rates and the highest poverty rate in the nation. The Golden State's toxic mix of exorbitant costs of living and, high taxes, and costing social engineering initiatives have made many working families poorer; no wonder Los Angeles and San Francisco alone lost 260,000 low-income residents to more affordable states between 2005 and 2015.

These issues didn’t grow up overnight, and represent decades of failure at statehouses in blue states across the nation. Now that the national economy is finally recovering, the last thing that states should choose is to fit themselves with an anchor. However, in Albany, Sacramento and beyond, they’re doing so voluntarily.

If blue-state lawmakers don't learn this lesson, hopefully American voters will. When newly-minted red-state residents feel the weight of more of their own money in their wallets, that should be evidence enough to leave failed economic policies behind them.

Kristin Tate is author of the new book "How Do I Tax Thee?: The Field Guide to the Great American Rip-Off". Follow her on Twitter @KristinBTate.