Opinion

WILFORD: High-Tax States Could Face A Remote Work Reckoning

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Andrew Wilford National Taxpayers' Union Foundation
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One of the few silver linings to the pandemic has been an increase in flexible work arrangements, as many employers following social distancing guidelines have allowed employees to work from home. Should this trend towards remote work outlast the coronavirus, states that have targeted unique employment opportunities with punitively high tax rates may see their residents head for the exits.

For example, even prior to the pandemic, California was facing a steady exodus of taxpayers. Between tax year 2017 and 2018, the last years for which IRS data is available, California suffered a net loss of over 60,000 taxpayers. This translated into a net loss of $8 billion in adjusted gross income. Outward migration led to a net decrease of over $24 billion between 2010 and 2018.

At least some of that out-migration is a result of California’s tax-and-spend proclivities (to the tune of a $227 billion budget this year). In fact, after months of hemming and hawing about a pandemic-induced budget deficit, California appears on track for a $15 billion surplus.

But the pandemic won’t be all bonanzas and windfalls for the Golden State. Fed up with the state’s high tax rates and byzantine regulatory systems, tech companies have begun a so-called “techsodus.” Tech giants like Oracle and Hewlett Packard have shifted headquarters from Silicon Valley to Texas, potentially representing the first boulders in an impending avalanche.

After all, state and local government in California has consistently viewed its resident businesses as cash cows to be milked, regardless of the economic consequences. In recent years, tech hubs like Cupertino and Mountain View have attempted to impose new employee head taxes — essentially, a tax on the number of employees a business has. Should the tech companies previously confined to Silicon Valley begin to spread out, localities may begin to feel more accountable to the businesses they tax.

And it’s not just businesses that may find they have new options. States like California and New York have long been able to ensure a substantial tax base even with some of the highest tax rates in the country due to the employment opportunities they could offer that other states simply could not.

But with the increase in remote work, jobs may not be so geographically concentrated for long. Tech jobs once limited to the Bay Area are now being performed by Americans across the country — and should the trend continue, Americans may find that they prefer to live in a state with lower taxes and a more reasonable cost of living.

States like New York and California have already begun working to fend off these shifts. Despite opening drafts of the most recent COVID relief bill including a fix to high tax states requiring taxpayers no longer commuting to their states to continue paying taxes, the provisions failed to make it into the final bill (go figure — Democratic leaders in the House and Senate happen to represent California and New York). California legislators even introduced legislation to impose a wealth tax that would apply to residents of the state for years even after they had left.

But taxpayers can hold out hope that these are the death throes of a tax-and-spend philosophy which will be subjected to far more accountability in the years to come — at the state and local level, at least. That can only be a good thing for perpetually overtaxed Americans.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government