(Bloomberg Opinion) — A progressive rallying cry to tax the rich is being welcomed by traditionally Republican states, including Florida and Georgia, looking for a new pitch to draw migrants — especially wealthy migrants — from the coasts.
Many Southern economies have struggled over the past few years as pandemic-era housing inflation eroded their appeal for young professionals and families seeking a lower cost of living. Now, proposals and legislation to raise taxes on millionaires in a number of Democratic states are becoming the best advertisement — thank you, Larry Page and Sergey Brin — for the wealthy to reconsider these low-tax destinations, where policymakers are debating further reductions.
In a K-shaped economy, with low job growth, it makes sense for Republican politicians to focus on the rich rather than trying to attract employers and talent. Democrats, on the other hand, have been emboldened by the apparent success of Massachusetts’ millionaire tax as they look to plug budget deficits and protect or expand social-assistance programs, without upsetting their electoral base.
Still, state taxes are easily avoided with relocation. And supporters of a wealth tax should be careful not to over-emphasize one success, especially since it came at a time when housing-market dysfunction prevented many families from making moves they would otherwise have considered. As housing transactions start to normalize from near the lowest level in four decades, we are likely to see a pick-up in high earners seeking more welcoming tax codes.
Democratic municipalities are under pressure to replace funding lost with the Trump administration’s cuts to Medicaid and expand other programs for low earners. Many are taking their inspiration from Massachusetts, the first state in this cycle to implement a tax on residents with incomes over $1 million, approved in 2022, with the money going to schools and transportation.
Washington state lawmakers have passed a levy on millionaires that would create its first income tax, though this will be challenged in court. Rhode Island is considering a similar proposal. There’s a well-publicized campaign in California for a wealth tax on billionaires. New York City’s Mayor Zohran Mamdani wants the state to slash its estate tax exemption threshold by nearly 90% as one of several ideas to raise taxes on the rich.
The embedded assumption in all these proposals is that more revenue will be raised by the levies than lost to the wealthy fleeing for other states. Defenders of the Massachusetts measure point to the $6 billion in additional revenue raised even as fewer residents earning $200,000 or more left the state in 2023 than in 2022.
The challenge with using data from those years to evaluate the impact of the tax is that housing activity and migration plunged throughout the US during that time as skyrocketing mortgage rates froze homeowners in place. Existing home sales in the Northeast census region plunged 36% between December 2021 and December 2023. They still haven’t recovered. Nationally, existing home sales as a percentage of owner-occupied US households is around a 40-year low, according to ResiClub, a housing analytics website.
These housing dynamics are slowly changing, with signs of a thaw in some Southern markets. And Republican-led states are going in the opposite direction on taxes. Florida Republicans want to eliminate the state’s property tax, with the revenue gap presumably made up through a sales-tax increase or by cutting services. Current Georgia lieutenant governor and gubernatorial candidate Burt Jones is pushing to eliminate the state’s income tax by 2032 to better compete with neighboring Florida and Tennessee. Missouri Republicans hope to eliminate their state’s income tax as well.
Georgia’s push is particularly noteworthy since its proponents aim to pay for tax cuts by ending subsidies for businesses that had previously been recruited to the state with tax breaks.
At a time of low job growth, when the cost of doing business in the South has risen and made the region less competitive, the net effect of the tax divergence between blue and red states may be to make the latter group focus more on recruiting the rich rather than businesses and workers. States including Florida have also become less financially feasible for middle-class retirees. The kind of person impacted by a millionaire’s tax in Massachusetts or Washington, however, isn’t someone who has been priced out of Florida, and the tax savings from a move are substantial.
We were already due for a pickup in housing market activity and, hence, interstate migration. The number of houses for sale in the South has increased substantially in recent years, pushing down on prices, compared with the supply-constrained coasts. Increased taxes on the wealthy, if enacted more broadly, would be as an additional catalyst to speed up the process.
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To contact the author of this story:
Conor Sen at [email protected]
