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Travis Brown: Why Taxpayers Are Fleeing California and Flocking to Florida

Travis Brown: Why Taxpayers Are Fleeing California and Flocking to Florida

By on Mar 2, 2013 |

By Dan Holland

Travis H. Brown is the author of the timely new book, How Money Walks: How $2 Trillion Moved Between the States, and Why It Matters. He is also the CEO and co-founder of Pelopidas, LLC, a St. Louis-based public affairs and advocacy firm and president of Let Voters Decide, a coalition that supports state tax reform and the protection of voters’ rights. We sat down recently to discuss his findings after distilling fifteen years’ worth of IRS taxpayer data which reveal a massive movement of American working wealth.

RealClearMarkets: A lot of people are watching what’s going in California right now, where they just jacked up the state’s personal income tax rate dramatically. Phil Mickelson of course stepped on a big bee’s nest recently with his comments about how he was getting hit hard by California’s high taxes and how he was considering leaving. You’ve also got Texas Governor Rick Perry going into California trying to lure businesses back to his home state where there is no income tax. What’s going on here? Is this a harbinger of things to come?

Travis Brown: Americans understand that the global competition to attract and keep highly talented entrepreneurs is fierce. Phil Mickelson understands that his price of work is higher than that of his competitor Tiger Woods, in part due to the golfers’ two different states of residence (California for Mickelson, Florida for Woods).

Governors who understand tax competition, including Texas Governor Rick Perry, are winning big and are likely to gain more from high tax states. Corporations and individuals that stay in high tax states like New York or Illinois are at a distinct disadvantage long-term. The state governments that thrive from understanding how money walks should serve as a positive example for our federal government.

RCM: Since we’re on the subject of Phil Mickelson and sports, let’s discuss LeBron James for a minute. Do you think taxes played a role in his decision to play for the Miami Heat, rather than the New York Knicks? Could you actually make a case that if New York had lower state taxes, LeBron may very well be wearing a Knicks jersey today? Heck, the Knicks might have even won a championship by now?

Brown: High net worth individuals do not move every year. However, when they do, they understand that it is not what you make that is most important. It is what you keep (in your pocketbook) that counts. LeBron James was likely better off in Miami than New York, even if his endorsement career moved off the court. American small businesses work just like LeBron James: fast on their own court, nimble with taking career risks, and quick to expand into new opportunities when they arise.

In our book, there is a great personal perspective from Joseph Calhoun, CEO of Alhambra Investment Partners. He discusses how ironic it is to attend a home Miami Heat game where so many transplanted New Yorkers are rooting for the Knicks.

RCM: Now, there are obviously a lot of different factors which influence where a person chooses to live. Weather, family and friends, and so forth. Does the IRS taxpayer data you looked at seem to indicate that a state’s income taxes play a leading role in people’s decisions?

Brown: When you look at fifteen years of Internal Revenue Service data, across more than 130 million taxpayers, you can start to observe the patterns of human behaviors. Taxpayers are fleeing from high tax states like California, and flocking to low tax states like Nevada or Texas. The performance of states with no personal income tax is amazing – over $146 billion of net gain of adjusted gross income.

Unfortunately, the reverse is also true – states with the highest personal income rates or per-capita income burden lost over $100 billion in adjusted gross income. Families understand that tax factors are important in their decisions to relocate because the “price of work” varies depending upon where you choose to live.

RCM: Which states are the biggest winners and which states are the biggest losers?

Brown: We dedicate an entire state in the book How Money Walks to Florida, which is far and away America’s biggest winner. The Sunshine State has gained over $86 billion in adjusted gross income (AGI) since 1995, from other states like New York ($16.8 billion), New Jersey ($10.2 billion), and Illinois ($6.2 billion). Since our data tracks active state 1040 tax return changes of residence, this wealth transfer is unlikely to be merely a retirement effect.

New York State lost over $58 billion in AGI, enough money to build 39 Yankee Stadiums. The rate of loss for New York State over fifteen years is $10.7 million every day. The City of New York – just the five boroughs – saw a loss of $43.8 billion, roughly equal to the market value of Time Warner.

RCM: Last question. You’ve obviously spent a considerable amount of time and resources putting your tax migration findings together. If you had to take out your crystal ball, and predict where this whole tax debate is going in the next, let’s say 5 – 10 years, not only on the state level, but on the federal level as well, what would you predict?

Brown: States that ignore positive or negative signals from highly-mobile taxpayers do so at their risk. Low tax states are likely to continue to attract more wealth, as families flock to places where income and opportunity are more welcome. High tax states that lose their economically mobile taxpayers will be faced with even more dramatic decisions on taxing or spending, since their tax base is narrower. Governors and state leaders who champion this reality are likely to inspire or reform Washington, DC, towards a better economic path.

 

 

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