- Residents of high-tax states were migrating to low-tax states before the pandemic, according to IRS data.
- As a result, low-tax states, especially Florida, are getting richer.
- BofA says ‘fiscal migration’ is far from a busy area, but evidence is mounting.
- See more stories on the Insider business page.
Tax-induced migration was an important part of the 2020 narrative, but the story actually started long before that.
Lower-tax states continue to get richer thanks to a steady influx of new residents from higher-tax states, according to a recent Bank of America Research note, which analyzed recently released IRS data for US tax returns. 2019, reflecting the 2018 earnings.
The data showed that the net gains in adjusted gross income (AGI) for the lower tax states were greater than those in the higher tax states: the latter saw $111 billion in AGI in 2018, while the former saw almost $ 145 billion. AGI’s net earnings from lower tax states also increased from 2017 to 2018 by $2 billion to $34 billion, wrote the team led by Ian Rogow.
The rise of telecommuting has led to a flood of Americans, especially the wealthy, from big cities to more accessible areas in search of sunnier places and lower taxes. Silicon Valley’s Technological Elites flocked to Texas, mirroring Big Apple Financiers on the East Coast, fleeing to Florida. But the IRS data make it clear that the pandemic has accelerated a pre-existing migration pattern.
It also confirms anecdotal evidence that Florida, in particular, is attracting many wealthier residents compared to pre-pandemic times, and is seeing its wealth increase at the expense of other states. The average AGI per return of people who migrated from Florida to New York in 2018 was $72,492. For those who migrated from New York to Florida, it was $135,813. Florida earned a total of $7.3 billion in AGI from the ten most taxed states.
People have been “discounting” the tax burden as an incentive to change for some time, the BofA note says, and while tax migration “remains an uncertain area”, the leaders of high-tax states are becoming increasingly more concerned about remote work and the SALT limit – the federal state and local tax limit, which was reduced to $10,000 during Trump’s tax cut in 2017 – they’re making residents question living there.
But all is not lost for the big cities, which represent a good part of the states’ revenue from high taxes. Consider New York City: Those who left during the pandemic are already returning en masse. USPS data released last month showed that nearly half of Manhattan residents who moved to Florida plan to go back. The city is also still home to the greater number of individuals with ultra-net worth in the world.
A separate report by BofA Research from May argued that the reopening will generate a return to NYC and San Francisco. “Both have the potential for some recovery in the short term,” says the note. “NYC and SF continue to be top cities for young renters because of their status as economic, financial and cultural centers, and the reduction in rents over the past year helps affordability.”
It seems that, for some Americans, big cities will always have a fascination. But, as evidenced by the trend of pre-pandemic migration, others are increasingly trading them for a more affordable lifestyle and better savings.
Only time will tell whether the high-tax states will really be overrated.