by Las Vegas Review-Journal Editorial Board, February 15, 2022
Americans are voting with their feet when it comes to high state taxes. Nevada lawmakers and economic development advocates should take notice.
According to a 2021 report by real estate broker Redfin, low-tax states attracted four new residents for every one who left, while high-tax states lost 2.5 residents for every newcomer.
Nevada, which has no state income tax, led the way, the report determined. Over the past eight years, the Silver State has gained nine new people for every one resident who left. Texas and Florida — which also don’t impose an income tax — also saw significant in-migration. On the other side of the ledger, New York, Illinois and New Jersey — all near the top in terms of tax burden — saw residents flee in droves, Redfin found. California ranked 15th in terms of out-migration.
Lower taxes consistently show up among the top reasons for a relocation, the Redfin survey reported.
“In 2021 the 10 states that gained the most residents from domestic in-migration had an average total state and local tax burden as a percentage of income of 7.7 percent,” Grover Norquist, president of Americans for Tax Reform, wrote for The Wall Street Journal this week, “notably lower than the 9.9 percent of the 10 states that lost the most residents.”
The pandemic has increased these trends. The rise of remote work has given workers more freedom to telecommute and many are choosing states with reasonable tax climates. Mr. Norquist also cites restrictions on federal tax deductions for state and local taxes and the realization that high-tax states don’t always deliver “better” services as motivation for residents to leave places such as New York.
“Florida (with 22 million residents) has no income tax and the state spends half as much as New York (20 million residents),” which has a punitive income tax, Mr. Norquist notes.
Lawmakers across the country are reacting to these trends. Mr. Norquist reports that, in addition to the eight states that have no income tax, a dozen more states have “begun the march to a zero rate,” including Arizona, North Carolina, West Virginia, North Dakota, New Hampshire and Mississippi.
U.S. Supreme Court Justice Louis Brandeis famously observed in 1932 how “a single courageous state may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country.” That concept is clearly at work as many states promote economic growth and job creation through responsible taxation, while others stubbornly cling to a formula that rewards government bureaucracy at the expense of entrepreneurship.
Despite a spate of tax hikes in recent years, Nevada remains in the former camp. Lawmakers must ensure it stays there.