Key Takeaways:
A stark economic divergence is widening across the U.S., with states levying no income tax reporting up to 10 percent job growth since 2020 while high-tax counterparts see employment shrink by as much as 3.8 percent.
"The numbers don't lie; for every Fortune 500 company that moves from a high to low-tax state, there are many more small and mid-sized businesses that do the same," Grover Norquist, president of Americans for Tax Reform, said in a recent analysis.
The divide is clear in private job growth outside of government-funded sectors. Since January 2020, Texas has seen a 10 percent surge in jobs and Florida an 8.5 percent increase. In contrast, New York’s private sector jobs declined by 1.3 percent, California’s by 1.2 percent, and Oregon’s by 3 percent.
This migration of capital and labor poses a long-term risk to the fiscal stability of high-tax states, potentially leading to underperformance for their municipal bonds and a shrinking tax base to fund public services. Conversely, states like Texas and Florida are poised for continued economic expansion, boosting their real estate markets and local economies.
The trend is fueled by a simple calculation for both businesses and individuals. Eight states, including Florida, Texas, and Nevada, have no income tax. At the other end of the spectrum, New York City residents face a top marginal rate of 14.8 percent, while California’s hits 13.3 percent. The tax burden extends beyond the wealthy, with California's 9.3 percent bracket starting below the state's median income for a single earner. A worker earning $90,000 could save over $4,200 a year by moving from California to Texas.
This disparity has triggered a significant corporate migration. Since 2021, major firms such as Chevron, Tesla, Oracle, and SpaceX have moved their headquarters from California to Texas. This follows a broader pattern of small and mid-sized enterprises relocating to states with lower tax burdens, which directly impacts new business formation and job creation.
High-tax states are struggling to fund public spending commitments, leading them to dig deeper into the pockets of the middle class. In Minnesota, the 9.85 percent rate begins at incomes of $203,150, while in Portland, Oregon, residents face a top rate of 13.9 percent on income over $250,000. Despite these high taxes, issues like homelessness in Portland have reportedly worsened as employment has declined. The ongoing exodus of taxpayers and businesses threatens to create a negative feedback loop, where a shrinking tax base necessitates even higher rates on the remaining residents.
This article is for informational purposes only and does not constitute investment advice.
