States Get Serious About Tax Cuts

Congressional Democrats are debating which taxes to increase, while the Biden White House is negotiating a world-wide cartel to limit tax competition. But in the 50 states there is a dramatic increase in tax competition to provide the best government at the lowest cost.

Economists have long noted the power of interstate tax competition for jobs and investment. In 2021 the 10 states that gained the most residents from domestic in-migration had an average total state and local tax burden as a percentage of income of 7.7%, notably lower than the 9.9% of the 10 states that lost the most residents. Interstate migration and tax competition are increasing for four reasons: 

First, two years of working from home during Covid taught employees and employers that it isn’t necessary to live in high-tax states.

Second, thanks to the limits on the deductibility of state and local taxes in the 2017 tax reform, blue states with high income and property taxes no longer have the cost of their high-tax policies hidden and subsidized by reduced federal income taxes.