The most recent state-to-state migration data released by the U.S. Census Bureau shows that California, New York, and Illinois continue to experience population loss to red states such as Tennessee, Texas, North Carolina, and Georgia. While relatively high taxes are not the only reason so many people have fled large blue states, they\u2019re certainly a factor, along with high housing costs and crime.<\/p>\n
\u201cThis population shift paints a clear picture: Americans are leaving high-tax, high-cost-of-living states in favor of lower-tax, lower-cost alternatives,\u201d writes Katherine Loughead, senior policy analyst at the Tax Foundation. \u201cOf the 32 states whose overall state and local tax burdens per capita were below the national average in 2022, 24 experienced net inbound migration in FY 2023. Meanwhile, of the 18 states and D.C. with tax burdens per capita at or above the national average, 14 of those jurisdictions experienced net outbound migration.\u201d<\/p>\n
Yet, rather than reduce their tax disadvantage, blue state lawmakers are taking action in 2024 to increase it. The new state budgets passed in March by the New York Senate and Assembly, for example, both include the same provision raising the state\u2019s top two income tax rates, as well as the state corporate tax rate. Under the Assembly and Senate budgets, New York\u2019s corporate income tax rate would increase by more than 19%, rising from 7.25% or 9.00%. The Assembly and Senate budgets raise the tax rate on income between $5.0 million and $25 million from 10.3% to 10.4%, while the tax rate on income above $25 million would jump from 10.9% to 11.4%.<\/p>\n
Governor Kathy Hochul (D-New York) has voiced opposition to the tax hikes included in the Assembly and Senate budgets. As negotiations between leaders from the two chambers and the Governor begin, some progressives say the tax hikes passed by the Senate and Assembly don\u2019t go far enough.<\/p>\n
\u201cBoth budgets prudently raise the top personal income tax and corporate tax rates,\u201d Fiscal Policy Institute director Nathan Gusdorf said about the New York Assembly and Senate-passed budgets. \u201cHowever, the budgets only increase taxes on the top 0.3% of taxpayers, and only on a temporary basis through 2027. The State\u2019s long-term fiscal health would be better served by broadly increasing the progressivity of our tax system for all high earners on a permanent basis.\u201d<\/p>\n
While Governor Hochul downplayed the tax hikes passed by the New York Legislature, Illinois Governor J.B. Pritzker (D) is leading with proposed tax hikes in his state. Governor Pritzker\u2019s budget proposal for FY 2025 calls for a nearly billion dollar tax hike.<\/p>\n
\u201cOn net, these changes\u2014mostly tax increases\u2014would increase state tax revenues by nearly $900 million to help fill a projected budget deficit while increasing spending,\u201d the Tax Foundation\u2019s Loughead wrote about Pritzker\u2019s budget proposal. \u201cSpecifically, individual and corporate income taxes, state sales taxes, and sports betting excise taxes would increase, while the only substantial reduction (from a revenue standpoint) would reduce local, not state, revenues.\u201d<\/p>\n
As Governor Pritzker seeks to balance the budget with higher taxes in Illinois, his counterpart in the nation\u2019s largest blue state, Governor Gavin Newsom (D-Calif.), has blocked a number of tax hikes proposed by California legislators. The fate of another proposed income tax hike, however, will be up to California voters this November and not Newsom.
\nCalifornia voters will make a decision this November on a ballot measure that seeks to raise the state\u2019s top marginal income tax rate, which is already the highest in the nation. The California Pandemic Early Detection and Prevention Initiative (AKA the Pandemic Prevention Tax), which will appear on the Golden State\u2019s November ballot, seeks to impose a new 15.15% top marginal state income tax rate, up from 14.4%, on earnings above $5 million. The new top rate would expire after a decade.
\nThe Pandemic Prevention Tax (PPT) qualified for the 2024 ballot with the help of millions of dollars provided by former FTX CEO Sam Bankman-Fried. It remains unclear what, if any semblance of a campaign there will be in support of the PPT this fall. Another variable that will have an effect on the outcome of the PPT is what the California Teachers Union and Governor Newsom decide to do. Should they actively oppose the PPT, as they did with another income tax hike on the 2022 ballot that was rejected by 57% of voters, a similar result can be expected for the PPT in November.<\/p>\n
As lawmakers in the most populous blue states advance proposals to raise what are already relatively high tax burdens, their counterparts in the red states they\u2019ve lost population to are taking action to strengthen their tax advantage. In Georgia, for example, lawmakers are debating a bill that would build upon the income tax relief that Georgia lawmakers have enacted in recent years, which moved the state to a flat income tax of 5.49%.
\nHouse Bill 1015, if enacted, would cut Georgia\u2019s flat individual income tax rate from 5.49% to 5.39%. The rate would then continue to fall by 0.1% every year until the rate hits 4.99%. While Georgia has a much lower top income tax rate than California and New York, it\u2019s not lost on lawmakers in Atlanta that there are no-income-tax states on their northern and southern borders with Tennessee and Florida, along with another bordering state, North Carolina, that has income tax rate reductions scheduled for the coming years that that could take North Carolina\u2019s flat tax from 4.25% down to 2.49% by the end of the decade.
\nAs in Georgia, Iowa lawmakers are looking to improve upon the rate reducing and flattening tax relief they\u2019ve enacted in recent years. Governor Kim Reynolds (R-Iowa) has enacted tax reform moving the Hawkeye State\u2019s income tax code from a progressive system with a top rate of 8.53% to a flat tax of 3.9%.
\nMembers of the Iowa House Ways and Means Committee recently introduced H.J.R 2006. H.J.R 2006 would refer a constitutional amendment to voters that, if approved, would prohibit the reimposition of a progressive income tax. H.J.R. 2006 would also require that any proposed income tax hike receive a two-thirds majority vote in order to pass.
\nTo date, 16 states have a supermajority requirement to raise taxes. The most recent state to enact a supermajority vote requirement for tax hikes was Florida in 2018, when 65% of Florida voters approved Amendment 5, which created a two-thirds vote requirement to raise taxes.
\nGovernor Reynolds isn\u2019t done reforming her state\u2019s tax code. During an interview at the Iowa State Fair last August, Reynolds said her goal is to put Iowa\u2019s personal income tax rate \u201con the path to zero.\u201d During that interview, Reynolds noted the competition she\u2019s up against, saying \u201cyou\u2019ve got Republican governors that are trying to outdo each other, so that\u2019s why I\u2019ve got to come back and cut taxes again.\u201d
\nLegislators in Sacramento, Albany, and Springfield who want to raise taxes further haven\u2019t been deterred by the fact that competing states are cutting taxes for individuals and employers. But that fact is not lost on the Washington, D.C. city council members and other community leaders who are being asked to support a proposed Business Activity Tax.
\n\u201cIf you have 30% of the law firms left [in D.C. already], the patient is in the ICU, it\u2019s in the operating room,\u201d former D.C. Mayor Anthony Williams, chair of the D.C. Tax Revision Commission, said earlier this year explaining his opposition to the proposed tax hike. \u201cThis is not the time to experiment with a brand new tax system. There\u2019s too much uncertainty. And we just don\u2019t even know how the damn thing works.\u201d
\nYesim Sayin, head of the D.C. Policy Center and another member of the Tax Revision Commission, echoed Williams\u2019 point, noting that when looking at the businesses, firms, and other employers who would be hit by the proposed tax hike, \u201ctheir relocation decisions are increasingly moving to Sun Belt states where the business climate is arguably better. And, to me, that\u2019s giving me concern with the concept.\u201d
\nWilliams\u2019 and Sayin\u2019s comments indicate an understanding that policy decisions are not made in a vacuum. Employers currently based in their city can relocate if the business tax climate becomes too inhospitable relative to the alternatives. This recognition, however, is clearly not shared by many of their counterparts in New York, Illinois, and California.<\/p>\n","protected":false},"excerpt":{"rendered":"
The most recent state-to-state migration data shows that California, New York, and Illinois are experiencing population loss to red states due to factors such as high taxes, high housing costs, and crime. Lawmakers in blue states like New York and Illinois are proposing tax hikes, while red states like Georgia and Iowa are taking action to reduce taxes and improve their fiscal advantages. Governor Gavin Newsom of California has blocked some tax hikes, but voters will decide on a proposed income tax increase in November.<\/p>\n","protected":false},"author":6,"featured_media":6379,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"Default","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[3492,1766,4223,4029,186,3768,3385,1221,3748,1240,2460,426,3681,4299,3393,4498,4061,2511,21,2369,260,641,210,2294,3398,1823,465,3940,148,387,4086,821,1864,2938,393,3682,2983,864,4503,1022,4286,3480,421,4504,1358,1065,4222,4343,3359,3912,4185,1183,4227,618,1774,1379,3519,444],"class_list":["post-6378","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-other","tag-bill","tag-budget","tag-budget-proposal","tag-budgets","tag-business","tag-business-climate","tag-california","tag-campaign","tag-census","tag-clear","tag-community","tag-competition","tag-corporate-income-tax","tag-corporate-income-tax-rate","tag-corporate-income-taxes","tag-corporate-tax","tag-corporate-tax-rates","tag-costs","tag-crime","tag-data","tag-dollar","tag-earnings","tag-health","tag-income","tag-income-tax","tag-increase","tag-kim","tag-leaders","tag-local","tag-lost","tag-mayor","tag-migration","tag-negotiations","tag-new-state","tag-new-york","tag-personal-income-tax","tag-policy-decisions","tag-population","tag-population-loss","tag-republican","tag-sam-bankman-fried","tag-spending","tag-sports","tag-state-to-state-migration","tag-support","tag-tax","tag-tax-hikes","tag-tax-increase","tag-tax-increases","tag-tax-reform","tag-tax-revenues","tag-taxes","tag-tennessee","tag-top","tag-vote","tag-voters","tag-washington","tag-zero"],"acf":{"keyphrase":"","keywords":"","sourceimg":"","country-category":""},"yoast_head":"\n