Widespread adoption of remote work is driving mass exoduses from high tax states
Moving is hard, costly, and time-consuming. Often, it involves uprooting one’s family, leaving behind fully formed social connections that are hard to replace. For children, this means leaving friends and extended family, starting over at new schools and new communities. For adults, moving often means leaving one’s job behind.
The COVID-19 pandemic changed this dynamic, however.
A lot of businesses, especially tech companies, have encouraged and set up systems that would allow remote work for more extended periods. Some even plan to offer remote work options indefinitely, which would significantly reduce the cost of moving among workers. That is, if people can work from anywhere, then they can live anywhere while at the same time accessing an expanded pool of job opportunities.
This has led to an increased exodus of people from high-tax states like New York, Connecticut, New Jersey, and California to less costly, low-tax states — a trend that was already in motion. 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
While not to the same extent as New York and California, people have already moved from Minnesota. As the Wallstreet Journal reported
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.”
This is not new, however. As John Phelan demonstrated, due to its high taxes, Minnesota loses high-income earners to low-tax states.
The COVID-19 pandemic and the policies associated with it have armed workers with a new tool to escape high taxes: the ability to work remotely. And if people can work remotely for high-paying jobs located in the Twin Cities, they won’t need to stay in the state.
Minnesota lawmakers need to exercise caution as they consider how to fix the current budget deficit. Raising taxes, which was already a bad option, would be even more disastrous with remote work.