In more detail
The participants are organizing across state lines hoping that more coordination will make it more difficult for wealthy taxpayers to avoid tax increases by moving out of state. The campaign underscores the increased political and fiscal pressure on states to increase taxes, plug budget shortfalls and ensure that taxpayers are perceived to be paying their "fair share".
Individuals can change their tax status by changing where they live and from where they work. This flexibility has spurred economic activity in many communities. However, the ability to leave behind a high-tax state creates a shortfall in that state's budget that many states are trying to fill. This shortfall has been exacerbated by the pandemic-fueled rise in remote working. Based on the United States Post Office's change-of-address data, the top six states people are leaving are: California, New York, Illinois, Pennsylvania, Massachusetts and Washington. The top six states people are moving to are: Texas, Florida, South Carolina, North Carolina, Georgia and Tennessee. While warm weather could tell part of the story, increased taxes also appear to be a correlative factor.
New York, which already boasts a high personal income tax rate, recently proposed three bills that would significantly increase its tax base. Senate Bill 2059 would increase tax rates on individuals, with the state's top tax rate moving from 10.9% to an astounding 24% on income of more than USD 20 million. Combined with New York City's tax rate of 3.876% and the federal rate of 37%, the total of the taxes due approaches 65%. Moreover, the lack of a meaningful state and local tax deduction (i.e., the USD 10,000 SALT deduction cap) for federal purposes makes this tax burden even more onerous. In addition to Senate Bill 2059, the New York legislature proposed Senate Bill 2162, which would impose a capital gains tax of up to 15% for top earners. Moreover, the legislature also proposed Senate Bill 2402, which would reinstate the stock transfer tax by reducing the 100% rebate on stock transfers to a 60% rebate (e.g., on stocks selling for USD 20 or more per share, the tax would be 2 cents per share).
A proposal in California would tax individuals based on up to 1.5% of their worldwide net worth. This wealth tax would continue to apply at a reduced rate for a period after the individual leaves California to mitigate the revenue loss associated with migrating individuals. This proposal certainly comes with significant constitutional concerns. Moreover, net worth taxes often come with significant complexities, including how to determine the net worth of an individual.
Proposals for wealth taxes and mark-to-market taxes are not unheard of in the US. These measures have generally had little political momentum, but the fact that these proposals are arising in several states and with a coordinated effort, means that individual taxpayers should consider legislative action as a realistic possibility. However, four of the states participating in Fund our Future are in the top six states that people are leaving. It comes as no coincidence that three of the top six states that people are moving to have no personal income tax. Given some of the aggressive tax proposals in New York, California and other the other states, it would come as no surprise that wealthy individuals may consider other states to live. The million-dollar question is whether the threat of wealthy taxpayers leaving will be enough to curb these onerous tax proposals.
