President Donald Trump’s new proposed tax plan is causing 800,000 people to flee from high-tax states, including New York and California, according to the The Wall Street Journal. The Tax Cuts and Jobs Act of 2017 will cause many high-income earners to move out of high-income states. However, some economists claim that this tax act will not cause such significant migrations between high-tax blue and lower-tax red states.
The Wall Street Journal article headlined “So Long, California. Sayonara, New York,” written by conservative economists Arthur B. Laffer and Stephen Moore, predict that the new tax bill, based on prior tax rate and migration patterns, would cause New York and California to “lose on net about 800,000 residents over the next three years — roughly twice the number that left from 2014-16.”
Migrations such as this have been occurring over the years, but the future is expected to see millions of people and billions of dollars flee from high-to low-tax states.
However, because Trump’s bill caps tax deductions at $10,000 per family, places like California, where top income tax rates surpass 13 percent, will have an increased rate at which the rich are moving out.
To put it in perspective, high-earning individuals living in California will experience a 4.5 percent increase in income taxes, and those living in New York City who earn $10 million or more, factoring in the effects of repealing the state and local tax deduction, known as SALT, can expect to see a 50 percent increase in taxes.
New York and California aren’t the only blue states affected. Connecticut, New Jersey and Minnesota will lose a combined 500,000 people over the same period.
Conversely, CNBC reported that economist and sociologist Cristobal Young of Stanford University calls such migrations “pure nonsense.” His studies of the relationships between taxes and migration have led him to suggest that, “There is no correlation between the top tax state tax rate and the number (or rate) of millionaires in a state.” He continues to claim that those affected by the taxes are the “late-career working rich” and are less likely to move because “they are embedded in a place for a host of social and economic reasons.”
Laffer and Moore state that 3.5 million Americans have already moved from high- to low-tax states, but what they fail to mention is that a majority of those who migrated were not high earners. Furthermore, a majority of migrants tend to leave states not because of taxes but due to changes in jobs or housing opportunities.
In addition, the number of millionaires in high-tax states continues to grow. Based on research done by Phoenix Marketing International, New Jersey has seen 46,000 new millionaires since 2010, for a current total of 258,000.
New York has seen an increase of 84,000 millionaires, totaling 465,000 and California has added 169,000 millionaires to bring its total up to 885,000. Throughout the country, most high-tax democratic states have also seen an increase in high-income residents.
The rich have been leaving blue states for red states, but the relationship between migrants and high taxes remains unclear. The high-tax states have created most of the wealth, as more millionaires exist than the number of those leaving.
The losers of the new tax change are states whose residents are affected most by the repeal of SALT, such as states in the Northeast and California. Whereas the winners of such changes live in low-tax Republican states such as Arizona, Nevada, Tennessee, Texas and Utah.
Roughly 90 percent of taxpayers will not be affected by the change, but the high earners in places with high income taxes will be. The Tax Cuts and Jobs Act, passed on Dec. 22, 2017, has retained the seven income tax brackets. The new changes will be in effect from 2018 to 2025.