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TaxWatch: Some states with decrease taxes have had nice success within the 2020 census. Are Individuals Actually Shifting To Escape The Tax Official?

A new snapshot of America's changing population provides new fodder in the ongoing debate about whether state and local taxes – or in some cases the lack of them – make a person move from one place to another.

According to initial results of the 2020 census, there are 331.4 million people in America today. The 7.4% population growth compared to 2010 was mainly due to population growth in the south and west, where growth rates were 10.2% and 9.2%, respectively.

In contrast, the Northeast grew 4.1% and the Midwest grew 3.1%.

Texas and Florida, two of the six states that will add seats in the US House of Representatives due to their population growth, also have no state income tax. Texas brings two new congressional seats and one expands Florida's delegation.

On the flip side, California and New York, two of the seven states that are on the verge of losing a seat in Congress, have state income tax rates that can reach double-digit percentages among the highest earners. (In fact, New York millionaires now face the highest combined city and state tax rate in the country.)

How to interpret these results, especially at a time when the Biden government’s plans to invest in infrastructure and families are putting the spotlight on potential tax hikes for the rich and corporate?

It all depends on who you ask.

"People are moving to economically dynamic countries," said Jared Walczak, vice president of government projects at the Tax Foundation, a right-wing think tank. These are places with lower taxes, fewer business regulations and zoning rules, he said.

"This has the potential to go from a trickle to a post-pandemic flood as remote working is far more profitable than ever," added Walczak.

Growth in the American sun belt – a region that includes Florida and Texas – has been boosted for decades by “tailwinds”, including a lower tax burden, some observers say.

Of course, all sorts of factors influence a moving decision, Walczak admitted. But taxes are "one of the reasons and there is (shown) a consistent correlation" with moving decisions.

New York ranked first and California ranked eighth on a table by the Tax Foundation of states with the highest combined state and local tax rates as of 2019. Florida was # 43 and Texas # 47, according to the ranking published in March.

Carl Davis, director of research at the Institute for Taxes and Economic Policy, a left-wing think tank, cast a very different light on the results of the census. "I really don't see any tax history here," he said. Weather and property prices are far stronger components than tax bills in relocation decisions, he said.

See: Where millennials move and settle down, the political geography of the USA is changing

Plus, the latest figures from the Census Bureau have maintained the long-term trend of oversized population growth in the south and west, Davis said. Between 2000 and 2010, the population of the South grew by 14.3% and the West by 13.8%, while the Northeast grew by 3.2% and the Midwest grew by 3.9%.

Speaking of headcount and tax regulations, Davis said, "There are so many examples going the other way. It's hard to see a major trend here."

For example, New Hampshire has no state income tax on wages, but New Jersey has and recently applied its maximum rate for the super-rich much earlier. The 2020 census figures show that the population of New Jersey grew 5.5%, slightly faster than the 4.3% growth rate in New Hampshire.

Alaska, Nevada, South Dakota, Washington, and Wyoming also have no income tax. New Hampshire and Tennessee only tax investment income. Neither of these states received seats as of the 2020 census, but Nevada was the fifth fastest growing state in the country.

"There are so many confusing factors"

North Carolina, Colorado, Oregon, and Montana are the other states ready to get one seat per person based on the 2020 census.

North Carolina has a flat tax rate of 5.25%, and Colorado residents voted in the last election to reduce their state income tax from 4.63% to 4.55%. Oregon and Montana have escalating rates that are 9.9% and 6.9%, respectively.

Michigan, Ohio, Pennsylvania, Illinois, and West Virginia rounded off the state's loss of seat based on the 2020 census. Michigan, Pennsylvania, and Illinois have flat rates, and the highest of the three is 4.95% in Illinois. Both Ohio and West Virginia have staggered rates, and West Virginia has the higher peak rate of the two at 6.5%.

"There are so many confusing factors" that make it difficult to filter tax trends out of moving data, said Whitney Afonso, associate professor of government at the University of North Carolina at Chapel Hill.

That's not to say it's impossible to spot the trends.

When Afonso investigated Connecticut's introduction of an income tax in 1991, she found no exodus from the state, but concluded that it was preventing some people from collecting. Meanwhile, other investigations in other states have not suggested escape taxes, she noted.

A Cornell University professor even wrote a book in 2017 called "The Myth of Millionaires' Tax Avoidance," based on his review of millions of records from high-income individuals.

The "result is mixed in the literature, and some of them are so difficult to control," said Afonso.

One thing is certain: even if it is not clear how much weight government tax regulations have in relocation decisions, according to Afonso, politicians are trying to shape them in such a way that residents and businesses are attracted.

North Carolina lawmakers "were very deliberate when they changed their tax policies about a decade ago," she said. Apple earlier this week
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announced plans to build a new corporate campus in North Carolina.

This link between residence and taxes is also taking place at the federal level – but to support more taxes for the rich.

Senator Elizabeth Warren appeared on CNBC Tuesday ahead of a hearing on implementing fairer federal tax law. Warren, a progressive Democrat, supports a wealth tax that would impose a 2% tax on wealth over $ 50 million and a 3% tax on over $ 1 billion.

One reason for a property tax is that it makes no difference whether you live in Massachusetts, Montana, or Mississippi. You have to pay the property tax. That way it's there for all of us and that way we can make these investments together. "

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