Tax Bill May Spark Exodus From High-Tax States

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.”

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Comments

BarkingCat AGuy Thu, 12/07/2017 - 20:04 Permalink

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.

In reply to by AGuy

AGuy BarkingCat Thu, 12/07/2017 - 21:01 Permalink

"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.

In reply to by BarkingCat

LightBeamCowboy HardAssets Thu, 12/07/2017 - 23:21 Permalink

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.

In reply to by HardAssets

boattrash August Thu, 12/07/2017 - 20:43 Permalink

Tax Bill May Spark Exodus From High-Tax StatesYour 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! 

In reply to by August

Roger Ramjet Thu, 12/07/2017 - 19:15 Permalink

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?

Bigly Dsyno Thu, 12/07/2017 - 20:31 Permalink

+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.

In reply to by Dsyno

AGuy Roger Ramjet Thu, 12/07/2017 - 19:33 Permalink

"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.

In reply to by Roger Ramjet

Parabolic Sine Roger Ramjet Thu, 12/07/2017 - 19:50 Permalink

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.

In reply to by Roger Ramjet

bigkahuna Thu, 12/07/2017 - 19:23 Permalink

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.

InnVestuhrr Oath_Keeper Thu, 12/07/2017 - 21:07 Permalink

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.

In reply to by Oath_Keeper

I Write Code Thu, 12/07/2017 - 19:26 Permalink

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.