Tax Bill May Spark Exodus From High-Tax States

Tyler Durden's picture

From FinancialSense.com via ValueWalk.com,

The following is a summary of our recent podcast, “Exodus – The Major Wealth Migration,” which can be listened to on our site here on on iTunes here.

It’s looking increasingly likely that we’ll see the GOP tax bill pass in the near future. Prepped for signing by the end of this year, the bill is sure to have sweeping effects on all taxpayers, especially those in high tax states.

Consider Dan White at Moody’s: Taxation Shift Spells Trouble for Underfunded States

“(Eliminating the state and local tax deduction) could help on the margins to drive people from those states to lower tax states because their burdens are going to increase significantly,” White said.

 

“What’s more, it’s going to make it more difficult during the next recession for states to increase taxes without being burdensome to the underlying economy.”

Many of the Rich Will Pay Under New Tax Plan

If we take the example of a high-net-worth individual living in California and making $1 million a year, that person’s state taxes amount to $102,000. If that person owns a $1.5 million home, property taxes would be around $27,000. As the new plan eliminates mortgage interest deduction above $500,000, this person would lose the ability to deduct roughly $20,000 in interest expenses.

In total, this person would lose roughly $150,000 in deductions. At a 40 percent tax rate, this person would end up paying around $60,000 more in taxes under the GOP plan.

“The idea that this is a tax giveaway to the rich just doesn’t hold true,” Financial Sense’s Jim Puplava said.

 

“It may help somebody that lives in Florida, who doesn’t have to worry about state tax deductions, because there’s no state income tax. And it does help out corporations by lowering their tax rate… but as far as individuals who lose their itemized deductions, this is going to, in effect, be a tax increase.”

Millionaire Migration Patterns

Generally, high-net-worth individuals don’t tend to move state-to-state very often, but that’s probably about to change.

One notable example occurred last year when billionaire hedge fund manager David Tepper relocated from high income tax New Jersey to Florida, which doesn’t have a state income tax. This not only saved Tepper millions of dollars, but also cost New Jersey as well.

If the GOP plan goes through, high tax states may have to rethink their tax strategy.

“I think we’re going to see a big migration,” Jim Puplava told listeners this week.

 

“We’re already losing almost 100,000 taxpayers per year in California. … If this tax bill goes through, this is really going to force a lot of people out. This is going to have a major impact on those high-tax states, and this is going to be a revenue drain.”

Ramifications Down the Road

With the deductibility of state and property taxes under threat, where every dollar paid saves 40 cents in federal taxes, we could see the effective tax rate spike.

Also, historically, when the federal government has eliminated deductions in exchange for lower tax rates, it has a habit of hiking those rates back up in short order. This happened in 1986 under Ronald Reagan’s tax reform where we saw President Bush Sr. and President Clinton hike rates up to the current 39.6 percent rate on the high end.

“This is a major game changer,” Puplava said.

 

“Now that it looks like we have a greater likelihood of this tax bill getting passed, we’re going to see a demographic migration.”

Listen to all our daily interviews with leading guest experts by clicking here.

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tmosley's picture

We're gonna build a wall, and California is going to pay for it!

God Emperor's picture

Better burn those mo-fos before they get a chance to flee.

Burn Cali , Burn !

max2205's picture

Add in a 20% drop in house equity....

Mazzy's picture

And think of how many people simply won't sell because that 20k drop puts them underwater and people tend to psychologically stay put in the face of that rather than take the hit and move to greener pastures.

QQQBall's picture

not vegas, reno. Vegas will need water

HardAssets's picture

Yep, my thoughts exactly-

“Oh great, invasion by even more California liberals “

AGuy's picture

Is this the plan to make all states Blue?

BarkingCat's picture

The might be an interesting effect from this migration. Imagine bunch of statist leftists leaving a state like California. However the libertarian and conservative types stay behind because they live in more rural areas and I'm not as affected by this tax issue.

Suddenly the political demographics change and conservatives take control of the formerly socialist state.

Mazzy's picture

Good luck.  It's your wife's womb versus anchor babies and immigrants from every country imaginable.

AGuy's picture

"However the libertarian and conservative types stay behind because they live in more rural areas and I'm not as affected by this tax issue."

Blue states are made up of a lot of FSA (welfare). They aren't going to move since the gov't is providing for their needs. Thus Blue states will remain Blue.

nmewn's picture

On the upside, its just like Amazon home delivery!

Slam another one in the chamber ;-)

LightBeamCowboy's picture

I was surprised looking at the website for the county airport here in sparsely-populated SW Oregon that the 200 aircraft home-based there is wildly out of proportion for the average income here or the expected number of pilots. I live right under the downwind leg of the airport's pattern, so I see everything that comes and goes. What I realized is that wealthy Californians can maintain a legal residence here, travel from their mansion to the airport in 15 minutes and be in CA to do a business deal in an hour. Now I wonder if every small airport in southern Oregon along the CA border sees the same kind of tax-minimization traffic.

Arnold's picture

We'll take most of Upstate, you can keep the City and Albany.

August's picture

FWIW, they can keep Remington Arms, too.

boattrash's picture
Tax Bill May Spark Exodus From High-Tax States

Your fucking-a-right it can cause an exodus...It may surprise people, but Arkansas is 12th highest in taxes, while ranking at/near the bottom of 50 states for income levels.

Having just visited the Arkansas Dept of Finance and Administration today re back taxes, I see no choice but to "vote with my feet". Florida, get ready, boattrash is coming your way!

 

Roger Ramjet's picture

Well there may well be some migration, but the guy making a $1 million a year in California isn't going to earn that much in Alabama. 

If companies move, that's a different story.  But why would a guy leave a $1 million a year job in California just because his tax liability goes up by $60K.  How will he replace that income?

Dsyno's picture

The truly wealthy can often move and live wherever they like. And they will if it means saving millions in taxes.

Bigly's picture

+1000

'Distance is so middle class'

They have private jets to whizz them wherever, easily. No TSA or hacking sneezing crowds. Easy peasy. The big bucks will always have the means to get around rules. The people really screwed are the upper middle class....the 10%ers up through the 1%ers. The .1%ers are ok.

boattrash's picture

The truly wealthy can do any-fucking-thing they want...Remember when Cunt Clinton ran for Senator in New York, but had only been a resident of Arkansas and DC?...I rest my case.

Omen IV's picture

the guys at a certain level influence policy - going from CA to west side of PHX  -  25k acres Bill Gates picked up - control the local community education agenda with all people over 100 IQ would be game changer - better education and cheaper than CA same with FL and NO crime - all left behind

AGuy's picture

"If companies move, that's a different story. But why would a guy leave a $1 million a year job in California just because his tax liability goes up by $60K. How will he replace that income?"

What about the 99% that make >>Less<< than $1M. Not everyone is 1MDB. FWIW: Many companies are already moving out of High Tax Blue states.

Parabolic Sine's picture

They wont, and companies wont relocate. The firm I work for is headquarted is in San Fran, they arent moving. It may push some of the ghetto dwellers out towards nevada and arizona but those with the means arent moving. If i could convince my old lady to move out there I would. Sacramento would be awesome to live at. Wine country, snowboarding, and a beach all a few hours drive away. Not to mention great hiking and beautiful women everywhere. Except for all the gun grabbers and fucked up politics, California is a beautiful state. Demented people really fucked up one of the best places in the US.

Mazzy's picture

The tax bill will not affect the ghetto dwellers.  They are going to get a larger standard deduction, so they benefit.

And so what if they take a couple hundred dollar hit in taxes.  How much does it cost to move these days?  Most Americans don't even have moving truck money saved up.

QQQBall's picture

the beach in Sacramento? Dude, shake your head and google mapquest. The beach... fuck me this place is going to the dogs

Bigly's picture

This article is WRONG. Top CA incomes have a 13.3% tax rate. Assuming 1M qualifies, this is 133000 in state tax....

Ghost who Walks's picture

This should be an interesting case to study. I remember hearing about the Laffer curve https://www.investopedia.com/terms/l/laffercurve.asp 

So the data collected in the future should be able to be checked and used to calibrate the model.

Wonder what the economists and social scientists will have to say?

Arnold's picture

Somalis will stay in Minnesota?

HomelessPatriot's picture

I just heard on cnn that California has asked the Mexican National Guard to assist with firefighting activities ASAP.

ali-ali-al-qomfri's picture

because Cali ran out of Jose,

and now need Hose B, C and D.

2banana's picture

It is going to fun watching the democrats defend the wealthy 1%ers blue state liberals from paying higher taxes.

God Bless DJT

bigkahuna's picture

California has been hemorrhaging its utopia for a very long time now. Ask Arizona, Texas, Colorado, and Oregon. I would mention Washington, but Cali has only added to what was already there.

Oath_Keeper's picture

And those movers have poisoned the political landscape of those once pristine areas.

InnVestuhrr's picture

I had a summer home in the Seattle area, could not tolerate the traffic and politics, so I relocated to the east side of the state, was as dramatic a change as moving to another country. Seattle area really really really SUCKS !!!!!!!! 2nd best part of the move was that I earned a BIG profit when I sold the Seattle area property, prices there are going vertical.

HardAssets's picture

Nope, Washington was actually a blue collar place - even in Seattle. Lumber, fishing, and building airplanes. The shift came with Microsoft and the attached California invasion. Ruined the culture of Puget Sound. The east side of the state is still very conservative.

Midas's picture

Most definitely a purple state.  Without Seattle city limits the democrats would have trouble winning.  Still holding on to that zero income tax...

BarkingCat's picture

They keep trying to get rid of it. That includes that cocksucker Bill Gates. The effort is being led by a state senator from Spokane who is originally from Michigan. I would like to tell it's stupid cunt to go back to Michigan if she likes paying state income taxes.

Teamtc321's picture

Just what we need, MOAR worthless Libtard's moving in.......... Filthy Cock roaches....   

Teamtc321's picture

I think my dog is a Democrat...........  

https://www.youtube.com/watch?v=H3VLqLLWxbQ

 

Gig 61's picture

THAT WAS FUCKING AWESOME!! THANKS FOR SHARING IT, ROFLMAO

InnVestuhrr's picture

BEST POST EVER ON ZH - HAVE DRINKS OF YOUR CHOICE ON ME

THANK YOU

 

** WARNING **

If you have a weak heart or respiratory problem, then DO *NOT* watch this video unless you want to die laughing because you WILL BE LAUGHING UNCONTROLLABLY.

I Write Code's picture

Someone in California making $1m/year probably lives in a $4m house at least, so will lose more like $200k/year net. But you know what, I'll bet they get a $300k raise to stay there. The rich are not like you and me. Me, at least.

DontMessWithGumby's picture

Maxine ain't gone payno tax. Maxine gone collect.

Friedrich not Salma's picture

There already exists a limit of using only the first $1M of the mortgage to deduct interest.

I Write Code's picture

This doesn't include any interest, just property taxes and state taxes.  Frightening, huh.  As you point out they are already eating the interest above $1m principle.

BrokeMiner's picture

Fuck California - its now legal to murder people in SF too

Bigly's picture

No *all* of CA, as it's only a misdemeanor to give people HIV knowingly...don't forget that doozy.