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Widespread adoption of remote work is driving mass exoduses from high tax states

Americans have been historically moving from high tax areas to low tax areas. In fact, according to Cato,

Looking at migration flows between the states in 2016, almost 600,000 people with aggregate income of $33 billion moved, on net, from the 25 highest-tax states to the 25 lowest tax states in that single year.

Workers are often less mobile than capital. And one of the main reasons for that is the fact that different geographical areas present people with different levels of employment opportunities. California for instance is a high opportunity state especially for workers in the tech industry. So, workers in the tech industry choose to endure high taxes in order to access job opportunities are.

Covid-19 and working remotely

However, the Covid-19 pandemic may have changed that. A lot of businesses, especially tech companies, have encouraged and set up systems that would allow remote work for more extended periods of time. Some even plan to offer remote work options indefinitely. And what we have seen with this fact is an increased exodus of people from high tax areas from places like New York, Connecticut, New Jersey, and California to less costly, low taxed areas.

One area that has seen a mass influx of people from out of state is Las Vegas. As reported by The Wallstreet Journal,

Searches by out‐​of‐​towners for homes over $1 million in the Las Vegas metro area surged by 155% from last year, according to Zillow’s analysis. Ten agents and brokers in the area said they have never seen more relocation interest. “More are driven to come here by high taxes in their states,” said Heidi Kasama, the listing agent at Berkshire Hathaway Home Services Nevada Properties for the home the Erras purchased. Weather is also a draw.

Minnesota is at risk

However, this is not a trend that is only affecting New York and California. In fact, people have already moved from Minnesota. The Wallstreet Journal also reported the following;

Drew Erra, a 52‐​year‐​old insurance broker and moving‐​company co‐​owner, and wife Melissa Erra, lived in Minneapolis for 24 years. But in July—when many Americans were realizing that working from home, remote learning and social distancing would be the new reality for a long time—they picked up and moved to Las Vegas. Their new home, a $3.2 million, arts‐​and‐​crafts home with a pool and golf‐​course views, cost over $2 million more than the one they sold in Minneapolis.

“I was paying 10.5% state income tax in Minnesota,” a rate which has now dropped to zero in tax‐​free Nevada, Mr. Erra said. “Just the tax savings alone covered the cost of the house.”

Minnesota is not new to this trend. As John Phelan demonstrated, due to its high taxes, Minnesota loses high-income earners to other states. And unfortunately for the state, the covid-19 disruption has armed workers with a new tool to escape high taxes; the ability to work remotely. So, if they can work remotely even for high-paying jobs based in the twin cities, they won’t have the need to stay in the state. In the long run, this is a loss for the state. This calls for extreme caution among lawmakers as they try to address the current budget deficit next year. Raising taxes, which was already a bad option, is certainly more unappealing now.

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