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There’s two great reckonings coming to high tax States in the coming years.

The first is when people realize that without tax offsets the appetite for their real estate plummets. It’s already started at the high end and is working it’s way down to the standard northeast 4/3/2.5 suburbs.

The second reckoning will come after the tippping point of high income earners leave for low/no tax States like Florida and Nevada. What remains will be an eroded income tax base with decades of unfunded pension obligations. They’ll raise taxes further to compensate for the spread in a vicious cycle that will push out more of the tax base. Fun times ahead.






I'm not sure I see any evidence the latter one happens in the forseeable future. Many high tax states hold top-performing cities which are struggling to handle massive incoming migration that has been happening a good 20 years.

The biggest gripe in my cost of living is by far housing. If I moved back to my home town in Florida, it would be so I can live near my parents and so I can afford a house . Not for taxes.

I suppose states without top cities, like Vermont, might run into problems. But even that is speculation - how many people actually uproot their lives just to save on state income tax?


What do you mean “many?” Basically just SF and LA. There is huge net domestic outmigration from day NYC.

NYC’s population keeps growing. It had a peak in the 70’s, but it’s never been larger than right now. https://en.m.wikipedia.org/wiki/Demographics_of_New_York_(st...

NYC might be okay, it's one of a kind, but I think NJ/CT/IL are in for a slow long term decay. Their debt numbers are staggering, and they don't offer anything unique that other places don't.

https://www.watchdog.org/illinois/by-the-numbers-illinois-re...


New Jersey has the second highest household income in the United States. That’s a significant draw.

In terms of debt to GDP it’s South Carolina and New York that’s in real trouble. https://www.usgovernmentdebt.us/state_debt_rank

PS: All states combined is 14.79% and NJ stands at 15.69%. So it’s not great, but it’s not that far from average.


None of the sources in that link seem to include unfunded defined benefit and other post retirement employment benefits as debt, which they are.

Percentage of taxes going towards paying debt service including benefits for retired government employees is going to far outpace increase in incomes for NJ/CT/IL. Plus they have a lot of infrastructure debt to pay.

They're not the worst states to live in, especially if you're making a high income from NYC or Chicago and need a suburb to live in, but for 90% of people there's probably a place they can get more bang for their buck tax wise in the long run.


Pensions have frequently been reduced in the US, making such long term obligations somewhat less dangerous.

Lack of large scale migration means people actually like living there even if they don’t like specific aspects. SC on the other hand seems to be in a far worse situation without any clear mechanics for improving the situation.

PS: Looking at federal spending you can see many states are already on life support.


I don't know about frequently, I've only heard of 2 cases of pensions being reduced, with Detroit and Rhode Island being very recent and very new phenomenons. Even then, they are still a large portion of the budget. In IL, there is state constitutional amendment protecting defined benefit pensions, and I would love to see the battle between non government employee voters versus government employees play out.

Either way, you can be sure that the situation will be bad before pensions start getting cut. And South Carolina might not be good, but there's a bunch of other states with high growth in incomes, increasing high income populations, and well funded governments.


It’s really common across a wide range of states.

https://www.nasra.org/files/Spotlight/Significant%20Reforms....

Most of these have limited impact on current retirees, but changing inflation calculations and capped annual increases really add up.


I don’t see anything in that about cutting accrued benefits, which require bankruptcy to change, and would be huge news as it was for Detroit and Rhode Island. NJ has hundreds of billions in unfunded accrued benefits, I.e. debt.

It’s designed to seem that way.

Arizona: Retired and current active members Replaced the Permanent Benefit Increase (PBI) with a compounding COLA to be based on CPI for the Phoenix region, with a 2% annual cap. This was done to save money over time, even if people see the same check today it’s noticeably lower in 10 years. Over a possible 40+ year retirement the difference is huge.

Arkansas: Current retirees Reduced automatic COLA from 3%, compounded, to the lesser of 3% or CPI, compounded. Again a single year at 2% compound vs 3% compound reduces outstanding debt by 1%. Over 20+ years it makes a huge difference.

Colorado: (2018) Retired and current active state employees. Suspended COLA for two years(2018 and 2019) They did more, but that alone reduced their liabilities by around 5%. They had already done a similar thing in 2010 by requiring retirees to wait over 1 year for their first COLA and reducing the cap from 3.5% to 2%.

I could go on but you find a lot of these changes that often add up to a 10+% reduction in benefits and thus costs.


Yes, while those states are doing a better job, that won’t do anything to lower the unfunded accrued liabilities. It’s going to come out of future tax receipts, effectively giving future taxpayers the option of paying more taxes and/or accepting reduced services. Other solution will be for Fed to print more dollars and inflate away some of the debt, which I’m sure they will do as they always have.

Lowering long term benifits for current retirees directly reduces liabilities.

If I sell a bond paying 5% interest, then say sorry only paying 4% that’s a lower liability.


Going from living in VT to NH right now, for those very reasons. A huge number of VT tax refugees along the border of VT and NH.

No one in their right mind is moving from New York to Nevada. More likely, in fact much more likely, is that the double taxation policy that was carved out against high-tax-base states is corrected once Republican national losses continue to pile up.

One can only hope that democrats remember how important it was to harm high-output states when they regain power and provide equivalent justice to the loaner states.


From 2010-2016, nearly a million people left the NYC metro area for other locations within the US: https://zicklin.baruch.cuny.edu/wp-content/uploads/sites/10/...

More context:

The City of New York grew by over 362,000 residents between 2010 and 2016, a growth rate of 4.4% (Table 1). City officials consider this to be among the strongest periods of growth in the last half century (NYC Planning, 2017a). The population grew by 402,000 people through natural increase, and net foreign migration added an additional 500,000 residents. Net domestic migration was -524,000, as more people moved out of the city than moved in. If foreign and domestic migrants are consid- ered together, approximately one person moved out for every person that moved in. The greater NYMA has approximately 20.2 million people and grew by three percent during this period, adding over 586,000 residents. Approximately 672,000 people were added through natural increase while foreign migration added an additional 849,000. The metro lost 903,000 people from domestic out-migration. NYC is a major driver of the metro area’s population change; 62% of the metro’s net population growth occurred within the city.

I don’t see the problem here.


>the double taxation policy that was carved out against high-tax-base states

It's funny how the same liberals who call for higher taxes on the rich are so against capping a subsidy that primarily benefits rich people. If anything, the tax bill should've gone further and completely eliminated the mortgage and property tax deductions as these deductions primarily benefit the rich.


You're confused; the parent comment and the article are primarily about the SALT deduction, not the home mortgage interest deduction. The main reason to mention "homebuyers" is that these taxpayers want to change their state of residence to lower their state income tax.

It's funny how the same "conservatives" that claim to love small and local government enacted tax policy that blocks states from effectively moving tax revenue from the federal government to the state government.


Stepping back from labels and left vs right dynamics, there have been a lot of words written about the new tax code just benefits the rich.

Whether you think states should be able to claim an uncapped amount of income out from under the Fed, whether you think that this tax policy is more or less likely to encourage smaller/bigger Federal government, it is definitely true that this is a substantial tax increase for anyone holding a large net value of personal property. Note that rental property does not have the same limits, as the deduction against rental income is not capped.


Crucially, it’s not just about a large net property holding. It’s about having a a large percentage of your personal worth in property. If you’re making a lot in salary, or you’re passing down millions in wealth, you’ve been offset on the personal property tax and other components of SALT. If you’re in the top 20% and you’re not getting offset on higher tax bands, you’re not offset.

>There’s two great reckonings coming to high tax States in the coming years.

Unfortunately all the people that pushed the policy that resulted in these states being high tax* will be able to move to gated communities, expensive suburbs and overpriced downtown apartments in other states. The people who will be left behind to be burnt will be all the poor people who can't escape the hell they didn't create.

Things tend to bounce between extremes so I wouldn't be surprised if in the next 50yr a few currently high tax states go bankrupt then extremely low tax low service then back to some middle ground.

*High tax isn't a problem by itself. The problem it that high tax states in the US don't turn around and deliver a proportionate amount of public good. A huge amount of the money disappears into an opaque, graft ridden black hole. If people actually got something proportionate in return (like they do in a few parts of Europe) taxes wouldn't be bad.


> *High tax isn't a problem by itself. The problem it that high tax states in the US don't turn around and deliver a proportionate amount of public good.

I certainly agree that there's waste, and more taxes leads to more waste. To your point, though, about "proportional amount of public good", I think there's a case to be made that higher tax areas do generally enjoy better services. An example is in quality of public schools, which is very important to me and my spouse.

NYC and its suburbs (including Westchester and Nassau Counties) are very high-tax areas. If you look at the US News ranking of public high school quality[0], you'll find that 42 of the top 50 public high schools in New York State are in NYC, Westchester, or Nassau; 3 more are in southern Putnam County (just north of Westchester) or western Suffolk County (just east of Nassau).

There are legitimate questions to be asked about how much signal is in USNWR's rankings, but the quality of schools is one of the things that keeps my spouse and me in the NYC metro area.

[0] https://www.usnews.com/education/best-high-schools/search?st...


Is it the quality of the schools as a result of the high taxes, or is the high tax area drawing only high net worth individuals who have more time and money to invest in their children, leading to higher performing students in the same old schools?

> or is the high tax area drawing only high net worth individuals who have more time and money to invest in their children, leading to higher performing students in the same old schools?

I think the effect is large for schools in particular because schools are mostly funded by property taxes which are directly applied to the residents (either directly or via landlords).

I think the relationship between taxes and any given quality metric is going to depend greatly on the who collects the tax, who delivers the service and what the funding route looks-like. There's much less opportunities for waste if a town is using local tax revenue to pay for local services. It's state and federal taxes are at the biggest risk of being wasted on boondoggle projects and graft.

It's a complex problem. The higher a level something is done on the more overhead and the more opportunity for waste but it also has a homogenizing effect because resources are allocated centrally. Central allocation has big risks (if the central authority doesn't want the things you do you're screwed) and less opportunity for compromise (we will never have a federal gun control solution that results in SF, NYC and Alaska all being happy).

IMO the extra waste is not worth the homogenizing effect or the risk in the overwhelming majority of cases. Government decisions should be made and things should be done (including taxes to pay for those things) on the lowest level possible.


Demand for real estate plummets and prices drop. Sounds absolutely horrifying.

The high income earners all fly off to states like Nevada, where the population is low and chances to earn a high income are even lower. That's definitely going to happen. Meanwhile, America's megarich continue to settle and grow their wealth in California, New York, and Washington and upcoming rich folk continue to pop up in those states while the best employment opportunities for other people also tend to be in regions where people are, not where tax benefits happen to be the best. Nevada's advantage is less the taxes and more the rapidly growing population and low rents due to a lack of high income earners driving rent prices up.




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