The cap that Congress’s tax reform bill places on federal deductions for state and local taxes offers an opportunity for blue states to exercise fiscal discipline or face a migration out of their high-tax states, writes Alfredo Ortiz, the president and CEO of the Job Creators Network, in a Wall Street Journal op-ed.
From Ortiz’s Wall Street Journal op-ed:
The great American migration out of high-tax states like New York and Illinois may be about to accelerate. The tax reform enacted last month caps the deduction for state and local taxes, known as SALT, at $10,000. This means millions of people will finally feel the full tax burden imposed by state and local politicians. When the SALT shield shrinks, so may people’s willingness to put up with these high taxes.
Such states already are losing population, and new Census Bureau data—released the same day tax reform passed the House and Senate—shows the continued migration. Of the seven states that grew the fastest between July 1, 2016, and July 1, 2017, four (Nevada, Washington, Florida and Texas) have no income tax, and the other three (Idaho, Utah and Arizona) have low taxes.
On the flip side, high-tax states like New York, New Jersey, Connecticut, Illinois and Rhode Island either lost residents or stagnated. Pennsylvania quietly became the fifth-most-populous state in the nation, displacing Illinois.
If politicians in high-tax states want to prevent this migration from becoming a stampede, they will have to deliver fiscal discipline. At least a few seem to realize this. New Jersey’s Gov.-elect Phil Murphy campaigned on a promise to impose a “millionaires’ tax.” But the Democratic president of the state Senate, Steve Sweeney, said in November that New Jersey needs to “hit the pause button” because “we can’t afford to lose thousands of people.” His next words could have come from a Republican: “You know, 1% of the people in the state of New Jersey pay about 42% of its tax base. And you know, they can leave.”
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