The tax reform signed in 2017 by President Trump led America to a pre-COVID economic boom that proved just how strong the policies of freedom are. Now, as the world says good riddance to COVID, Biden wants to reverse Trump-era tax policies and bring the country back to the bad old days. Thankfully, America’s state governments, where they are run by pro-freedom politicians, are taking the lead on tax policy to benefit their residents. Grover Norquist, president of Americans for Tax Reform, writes in The Wall Street Journal:
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.
Third, Americans have noticed that high-tax states don’t provide better roads, education or other services. Florida (with 22 million residents) has no income tax and the state spends half as much as New York (20 million residents). New York has a top state income tax of 8.82% (soon rising to 10.9%) and was the only state to raise its personal income-tax rate during the pandemic.
Fourth, state leaders have discovered that they can reduce marginal income-tax rates by relying on triggers that permanently reduce the state income tax when revenue rises above a predetermined spending limit. Tax reduction is enabled by spending restraint. North Carolina provided the best example of this strategy over the past seven years.
Today eight states have no personal income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
Two more states have already enacted laws to phase to zero. New Hampshire, which never taxed wage income, voted in 2021 to phase out its tax on dividends and interest over five years, under the leadership of Senate President Chuck Morse. Louisiana, under the leadership of Senate Majority Leader Sharon Hewitt, has set a path to reduce its income tax every year triggers are met. These triggers could take Louisiana’s income tax to zero by 2034, particularly if the Legislature implements additional rate cuts in coming years.
Ten other states have begun the march to a zero rate. West Virginia’s Senate, with the enthusiastic support of Gov. Jim Justice, has voted to draw down the state income tax. So has the state House in North Dakota. Mississippi Gov. Tate Reeves was elected in 2019 on a promise to end the income tax. In January, under the leadership of Speaker Philip Gunn, the Mississippi House voted 96-12 to move to zero.
Action Line: Your Survival Guy calls the states looking at their residents like valued customers Super States. Those looking at their residents like a piggy bank from which to withdraw money are the Escape States. If you are serious about making the move from an Escape State to a Super State, but can’t get going on your goal, I can help. Click here to subscribe to my free monthly Survive & Thrive letter, and I’ll help you break inertia and achieve your goal of freedom. But only if you’re serious.
E.J. Smith - Your Survival Guy
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