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Tax relocation is a myth

By Kay Bell · Bankrate.com
Tuesday, February 19, 2013
Posted: 12 pm ET

Texas Gov. Rick Perry has been spending a lot of time in California of late. No, he's not learning to surf or taking star tours of Hollywood.

He's trying to convince Golden State residents to move east, or at least 1,500 or so miles east. And Perry thinks one of the biggest attractions for such a major undertaking is Texas' lack of an individual income tax.

Perry even issued an invitation via social media to one rich Californian -- professional golfer Phil Mickelson. The Masters champion earlier this year cited high taxes as a reason for reassessing his California residency.

"Hey, Phil, Texas is home to liberty and low taxes. We would love to have you as well," Perry wrote on his Twitter account.

But will Mickelson and his multimillionaire pals really load up the moving vans and head halfway across the country just for a lower tax bill?

Studies seem to say no.

It may come as a shock to hardcore anti-tax advocates, but a state's tax rate isn't the biggest mobility motivator. Sure, we'd all like to make and keep more of our money, but people move for lots of nontax reasons.

They want to live in a more moderate climate. They want more affordable housing. They want safer neighborhoods. They want to live nearer family. They got an out-of-state job.

But taxes really don't spur folks to call a moving company.

A 2011 study by the Washington, D.C.-based Center on Budget and Policy Priorities concluded that, "The effects of tax increases on migration are, at most, small -- so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue."

Jon Shure, director of state fiscal studies at the center and one of the authors of the study, recently told The New York Times that tax flight from high rates "is almost entirely bogus. It's a myth. The anecdotal coverage makes it seem like people are leaving in droves because of high taxes. They're not. There are a lot of low-tax states, and you don't see millionaires flocking there."

The cost of low taxes

In fact, according the Center's analysis, low taxes can backfire.

Without enough revenue, amenities such as high-quality public services that potential new residents value suffer.

"Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants," according to the study.

So while Texas might get a few more affluent folks from California, which recently agreed to higher taxes on the rich, many more will likely stay put. Oh, they'll grumble like Mickelson. But they like plenty of other things out there on the left coast and they'll stay.

Personally, I've lived in Texas and Florida, two presumed tax haven states because they have no income tax. I also spent almost two decades in Maryland, a state that is regularly cited by anti-tax groups as egregiously overtaxed.

I didn't feel any poorer as a Marylander or noticeably richer as a Floridian or back here in my native Lone Star State. And taxes didn't play a part in any of my relocations.

Have you ever moved primarily to reduce you state tax bill? If so, how did that work out for you?

***

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes," and a co-author of the e-book "Future Millionaires' Guidebook."

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7 Comments
David Smith
March 15, 2013 at 10:46 am

thanks for giving valuable information on Dallas Moving Companies, i tried greenvanlines.com and satisfied with them.

Harsh Singh
March 07, 2013 at 1:07 pm

1979 Moved from California to N.M too many people crowded. From N.M to Denver job offer stayed extra 5 wife liked the mountains. Then TX no state taxes, homestead laws (the only blizzards are on TV) and February you will see people wearing shorts and T-shirts at the airport while twin cities have white out conditions. Property prices always lower than a lot of places. Finally, there may be a number of reasons.

Gregory S Young, CPA
February 24, 2013 at 11:58 am

Ms. Bell
Just finished reading your article "Tax relocation is a myth"

How much Cool Aid have you drank. As a CPA practicing in Oregon for the last 30 years I personally have advised and know dozen of taxpayers who have left Oregon because our high tax rate. Most move across the state line just a few miles to Washington with no state income tax, though many moved to Florida, Texas and Wyoming. This includes not only moving themselves but relocating their business. And some of these are taxpayers with somewhat moderate incomes, I have had clients who are colleting $150,000 in Oregon's PERS benefits move across the river to Washington to save the $10,000 in Oregon income. But most are business owners or retiring business owners or executives with $500k or more in annual income.

And Washington DC contributes to this problem by not allowing the state and local income taxes as a deduction for AMT purposes. So not only do states like Oregon and California have punitive taxes the federal government has deemed it appropriate not to allow these high taxes as a deduction, thus making the taxpayer pay federal taxes on income that he doesn't even have because he paid it to the state.

You can continue to spread your propaganda but those of us in the tax business know the truth.

M Schlander, CPA
February 24, 2013 at 8:58 am

Read your article and started laughing, are you serious? How do you think all that Texas growth occurred over the last 3-4 decades? It certainly wasn't because of a moderate climate. What happened to the 2 to 3 million people that relocated out of California? Given your personal experiences you are ignoring alot of basic data. Look what happened to Michigan, most of their car industry relocated to low/no tax states that had very favorable labor laws. Pointing to data from a New York and DC think tank is a good way to get a view of how New York and DC are working, and when you take that into consideration, they aren't. Find out where all the sports celebrities are living..... or planning to live, find out where businesses are moving, find out the impact of the housing crisis because alot of people are stuck and can't get out, look who has low unemployment... looking at one dimension of data is interesting, but it does not provide the true answer..... next time ask the guys at Freakonomics to take a look at this and the answer will probably surprise you.

Peter
February 21, 2013 at 6:30 pm

Absolutely,

We moved out from Los Angeles, CA for exactly this very reason and relocated to Seattle. We've had a huge increase in our lifestyle as a result of no WA state tax. Admittedly some of the increase comes from the relatively cheaper housing costs in relation to LA and less time stuck in traffic, but the benefit in not only having no income tax, along with the tax deduction we can now take against our sales taxes gave us an immediate income boost. This income has gone into us being able to afford additional services like someone to take care our our lawn, gym membership, new cars etc. all of which directly provide employment to others.

Based on this experience if ever taxes rise within this state we will move out to TX without any issue.

David A. Giesel
February 21, 2013 at 11:13 am

After reading your article I was hoping to find statistics concerning the issue: ie, does one (esp. a multimillionaire)benefit financially by moving to another state. The only hard stat I saw was that higher tax states had a higher growth rate than lower. Several factors could account for this, making this one stat spurious to your argument. So I read that rich Californians might stay put (irrelevant), that there might be less public service (the rich probably don't need), and that you didn't feel poorer in Maryland (immaterial). If tax relocation is a myth, certainly the underlying implication of personal financial gain and Laffer's curve have not been shown to be.

H M DUBROW CPA
February 20, 2013 at 9:29 am

Attn:

Ms. Kay Bell:

I would like to mention an often overlooked tax deduction to your readers..........how to account for losses on your IRA account

Sincerely,

Henry M Dubrow CPA (Licensed in NY and Florida)