December 6 2012
Vicki E. Alger
Tax “aggression” by states is increasing, and citizens of many states have had enough. According to the Fiscal Times, the top states seeing people voting with their feet are (in ascending order): Ohio, New Jersey, California, New York, and Illinois.
New Jersey, California, and New York are no-brainers: sky-high tax rates, balance sheets that are anything but, and little indication that business climates will become friendlier.
Ohio makes the migration list largely because of its Bright-Line Test, which has strict standards regarding who’s considered a resident for taxing purposes. So many people may declare residency out of state or limit business transactions to avoid hitting the taxation threshold.
Illinois, explains the Financial Times, “recently increased their income tax by approximately 67%. That is an incredible jump, so it stands to reason residents are looking for a way out. ... Ironically, the Land of Lincoln could lose enough pennies through attrition that its financial problems only worsen.” Further:
Cities and states always have an ebb and flow in population, but if you are in a state with a decreasing population it could impact you in the way of higher taxes (to make up for lost revenues), a less healthy economy (less people to buy stuff), and possibly less pay in your pocket (as a result of shrinking business revenues). This ‘sucking effect’ of residents flowing out of the state can be a self-fulfilling feedback loop that decimates a region. The analogy of rats jumping off a sinking ship might come to mind.
States like Florida and Texas are building a more solid tax base by keep rates low but broad—something to think about amidst all the talk we’re hearing about people paying their “fair share.”