- High-tax state residents were migrating to low-tax states pre-pandemic, per IRS data.
- Low-tax states, especially Florida, are getting wealthier as a result.
- BofA says ‘tax migration’ is far from a settled area but evidence of it is adding up.
- See more stories on Insider’s business page.
Tax-induced migration was a key part of the narrative of 2020, but the story actually began long before that.
Lower-tax states are continuing to get richer thanks to a steady influx of new residents from higher-tax states, per a recent Bank of America Research note, which looked at recently released IRS data for tax returns from 2019, reflecting 2018 earnings.
The data showed that net gains in adjusted gross income (AGI) for lower-tax states were higher than those in higher-tax states: the latter saw $111 billion in AGI in 2018, while the former saw nearly $145 billion. The net AGI gain of lower-tax states also increased from 2017 to 2018 by $2 billion, to $34 billion, the team led by Ian Rogow wrote.
The rise of remote work prompted an outpouring of Americans, especially the wealthy, from big cities to more affordable areas in pursuit of sunnier locales and lower taxes. Tech elites from Silicon Valley have flocked to Texas, mirroring Big Apple financiers on the East Coast fleeing to Florida. But the IRS data makes it clear that the pandemic accelerated a pre-existing migration pattern.
It also confirms the 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 migrating from Florida to New York in 2018 was $72,492. For those migrating from New York to Florida, it was $135,813. Florida gained a total of $7.3 billion of AGI from the top ten highest-taxed states.
People have “discounted” tax burdens as a move-inciting factor for some time, the BofA note reads, and while tax migration “remains an unsettled area,” leaders from high-tax states are becoming increasingly concerned that remote work and the SALT cap – the federal cap on the state and local tax, which was slashed to $10,000 during Trump’s 2017 tax cut – are making residents question living there.
But not all is lost for big cities, which make up a good chunk of revenue for high-tax states. Consider New York City: Those who left during the pandemic are already returning in droves. USPS data released last month showed that nearly half of the Manhattanites who moved to Florida plan to move back. The city also still remains home to the highest number of ultra-net-worth individuals in the world.
A separate BofA Research report from May argued that reopening will spark a return to both NYC and San Francisco. “Both have the potential for some recovery in the near term,” the note reads. “NYC and SF remain premier cities for young renters given their status as economic, financial, and cultural centers, and the pullback in rents over the past year helps affordability.”
It seems that, for some Americans, big cities will always have an allure. But, as evidenced by the pre-pandemic migration trend, others are increasingly ditching them for a more affordable way of life and better savings.
Only time will tell whether high-tax states become truly overrated.