Budget & Tax

No new tax cuts?

March 16, 2021

Curtis Shelton

For years now, states like California, New York, and New Jersey have driven residents away with their big-government policies. These policies have continually added to the financial burden of living in these high-tax, high-cost states. Now the federal government, controlled by Democrats, is seeking to push those policies nationwide.

IRS data collected by How Money Walks shows that those three states have lost billions in adjusted gross income. From 1992 to 2018 California lost $73.52 billion in adjusted gross income. New York lost $120.33 billion. New Jersey lost $41.42 billion.

While size and location may vary for these three states, they all have one thing in common: a penalty on work. With some of the highest personal-income taxes in the nation, these states disincentivize work to such a degree that the Tax Foundation puts them at 48th, 49th, and 50th in their individual tax rankings. As these states have routinely chosen high taxes that drain residents’ pocketbooks, people have begun to leave. Some may say this wealth migration comes from just a few high earners leaving and does not reflect overall population changes. However, the data show that even when looking at population (not wealth changes) these states see a loss.

As these states continue to lose wealth and population, states like Florida, Texas, and Tennessee continue to grow. With no income tax and an overall pro-work tax structure, these states have gained more wealth, primarily from states like California, New York, and New Jersey. It's clear that Americans are voting with their feet and have chosen low tax, pro-growth policies.

Unfortunately, the federal government has other ideas. The American Rescue Plan Act prohibits states from using bailout funds for tax relief and may not allow states to cut taxes through 2024. This would bar states from enacting the sorts of policies that have allowed states that Florida and Texas to flourish over the last two decades. This is also a penalty on states that made tough decisions to remain relatively open throughout the pandemic and avoid the budgetary shortfall that lockdown states have experienced. States with a stable economy have created a great opportunity for tax relief as the national economy begins to recover from the pandemic. The federal government is attempting to take this opportunity away.