Category Archives: Right State of Mind | Tax Reform, Growth

A simpler, fair tax code

US News: Every Day Is Tax Day

There is no such thing as a mere “tax day,” or even a “tax season”

By 

Travis H. Brown is the author of How Money Walks: How $2 Trillion Moved Between the States, and Why It Matters.

With April 15 comes the familiar litany of mundane exercises. Fill out the forms. Call the tax preparer, or pull up the software. Figure out the best way to reduce your tax burden. Pop everything in the mail. For many Americans, mid-April is the only time to think about taxes. However, taxes should play an integral role in life’s biggest decisions, from where to start a business to where to retire. Taxes are a concern of local, national and global proportions. Where we live determines how much income we are able to keep, save and invest. From personal bank accounts to massive corporate holdings, capital migrates to where it is treated best.

In the United States, no- and low-income tax states are experiencing booms, while high-income tax states are threatened with busts. This is no mere hypothesis. Fifteen years’ worth of data from the Internal Revenue Service shows that net adjusted gross incomes (net AGI) move from states that levy high income taxes to those with low or no income tax. Our analysis of more than 134 million individual taxpayer records revealed that, between 1995 and 2010, more than $2 trillion dollars moved between the states. Using this unimpeachable data, we can see – down to the county level – which areas are gaining wealth and residents, and which are losing them.

Why does this matter? There are myriad reasons. Successful people and businesses flee from states with harsh tax environments. They flock to states with benign, progrowth tax structures that allow them to save and invest. This is why a state like California, with its top income tax rate of 13.3 percent, saw a loss of more than $31.7 billion over 15 years. Texas, which taxes its residents at the very agreeable rate of zero, gained more than $22 billion over that same time period. (Recently, Texas Gov. Rick Perry took advantage of this reality by running ad campaigns that woo California businesses to move to Texas.)

Of course, taxes are not the only factor considered before a relocation – but they can (and should) play a major role in the decision. High-profile, real-life case studies have amplified the conversation, such as when golf legend Phil Mickelson said high taxes made him want to leave California. But the issue of economic mobility is certainly not restricted to the wealthy; moving from a high-tax state to a low-tax one makes a significant impact (equivalent to an immediate and permanent pay raise) for middle-class families, too.

All across the nation, leaders are taking notice of tax migration. No one wants to be the next California ($22 billion lost), New York ($58.6 billion lost) or Illinois ($26.1 billion lost), with wealth and talent streaming out of the state. Governors like Louisiana’s Bobby Jindal have proposed all-out repeals of the personal income tax, in order to keep more money in residents’ pockets, to boost consumer spending, and to compete with business-friendly neighbors. This year alone, the governors of Indiana, Wisconsin, Ohio, North Carolina, Idaho, New Mexico, Kansas and Maine are all backing serious tax reform. In other states, such as my home of Missouri, state legislatures are proposing tax reform bills and carrying the torch for real change.

Clearly, a number of people – from celebrities to legislators to working families – are grasping the difference that a low-tax environment can make, both in their lives and for the future of their communities. This April 15, it’s time for this message to reach even more Americans. There is no such thing as a mere “tax day,” or even a “tax season.” Our lives and livelihoods are impacted by taxes every day. The decisions we make, based on this knowledge, can change our economy for the better.

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Forbes: When States Make Empty Promises, Taxpayers Walk

As American taxpayers wrap up their individual tax filings, the vast majority of our state legislatures still have a few weeks or months to complete their efforts for state tax reform. In the coming days, small business owners will try hard to forget how much they paid into the system in 2012. Given the pain associated with paying, measured against the return, one can easily see why business owners move to more tax-advantaged locations — just as several professional athletes and entertainers have done recently.

However, if our job creators are to turn around America’s economy, they cannot turn a blind eye to leading reforms happening within their own state capitols. Watching Washington, D.C., languish its way through more than 73,000 pages of Internal Revenue Service regulations could easily consume years. However, the chief executives of our states, the 50 governors, often navigate substantial tax code changes within weeks or months. If turning around Washington, D.C. can be likened to shifting the direction of a battleship, realizing change within the states is more akin to a few folks padding rapids inside a canoe.

The trend towards state action, in part as a hedge against rising uncertainties with federal taxes, may be on pace to break a state legislative record. Kansas Governor Sam Brownback led with tax cuts this past January. State legislatures in Oklahoma, Missouri, Iowa, Indiana, Ohio, Louisiana, and North Carolina have responded with tax cut bills of their own. What do these states have in common on other issues beyond income tax reform? Their commitment to take responsibility for reigning in major increases in state spending is clear. States serious about economic growth are putting new ideas on the table.

Based on the headlines, and even well-meaning critiques, the strength of this trend is not always apparent. Governors who lead with bold tax-cutting principles are fought by many stakeholders. Those who choose to oppose new, independent tax codes often write political obituaries before bills are even considered. Owners of small businesses know that success starts with courage and conviction. If the process for tax reform were an easy one, every governor, speaker, and senator would be leading the charge.

Governors do not have to guess about the past performance of how their business climate has lured new income. Thanks to migration data, we see the clear evidence that when states make empty promises, taxpayers leave. That means that auditing Milwaukee’s leadership versus the loss of more $22 billion in adjusted gross income within Chicago will be easier to do. That’s one audit worth having in our economic future.

Source: Forbes.com

Forbes: Why All Governors Need A ‘Empleos Ahora’ (Jobs Now) Tax Haven Strategy Like Puerto Rico

 

One could argue that the new face of American leadership can be found in Puerto Rico. Take, for example, newly elected Governor Alejandro Garcἰa Padilla.  He won a narrow election in what could someday be America’s 51st state, on an island with 3.7 million people.  Perhaps most importantly, the new administration seems to be continuing the business- and investment-friendly policies of previous governor Luis Fortuño. Indeed, it appears that on either side of the political spectrum, Puerto Rico is committed to becoming a tax-friendly investment haven. The rest of the continent would do well to take a look.

Following in Fortuño’s footsteps, Padilla seeks to expand an economy roughly the size of Delaware.  As the new governor articulated in his message platform, his plan will “attract industries that cannot operate outside the United States because of security and tax reasons.”

From the mainland, looking out toward the Caribbean, Puerto Rico’s strategic path towards a U.S.-based tax haven makes a lot of sense.  In recent years, it has become harder and harder to repatriate income into the United States, with an estimated $8 trillion settling offshore.  Certain industries, such as those investment funds regulated within U.S. securities law, still might prefer to do business within an American-based jurisdiction.  Then, there’s the issue of real tax advantages, such as simplification and lower effective rates.  Where else within U.S. territorial waters can the U.S. stop the filing of a federal income tax return, other than Puerto Rico?  Recently, the Internal Revenue Service issued this advice in Topic 901; as of January 4th, 2013:

“In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are only required to file a U.S. federal income tax return if they have income from sources outside of Puerto Rico or if they are employees of the U.S. government.”

How can someone potentially prove that all of his or her income is sourced within Puerto Rico?  Well, a first step is moving yourself and your assets there.  Sources, such as Bloomberg, are now reporting that at least ten wealthy investors have already made the jump.  Then, for some, there is utilizing the new law that was set up to lure businesses into Puerto Rico – known as Act 22, it exempts those who qualify from income tax on their interest, dividends, and certain long-term gains from securities.  There’s no need for a Phil Mickelson apology tour like hedge fund billionaire John Paulson has attempted.  Puerto Rico incentives will matter to those who meet their attractive conditions.

On the international front, legal advisers explaining Act 22 advise foreign investors that as long as they do not own residential holdings within the United States (excluding Puerto Rico), they may not be subject to U.S. estate taxes.  This tax code structure could provide Puerto Rico with the best of both worlds on how money walks onto the island – foreign assets if you want it offshore, and domestic governance if you need it onshore.

Since states like Florida (without a personal income tax) have attracted $86 billion in adjusted gross income due in part to tax factors (1995-2010), Puerto Rico’s competitive climate could show other states how tax code incentives work with financial services.  Governors like Louisiana’s Bobby Jindal are pressing to repeal state personal income taxes altogether for the same goal:  Más dinero para tu bolsillo (more money in your pocket).  Within the next decade, if these state initiatives do not pass… Puerto Rico could have more money in its tax-haven pocket as a result.

Travis H. Brown is a contributor to Forbes.com: Source Link

Three Ways That Census Studies Can Change A Life

By Travis H. Brown

Throughout my book tour travels, we have a chance to meet families who are the stories within our How Money Walks data.  We have met couples in Naples, Florida, who have migrated their snowbird status away from part-time to full-time.  They might move from cities like Minneapolis, Chicago, or Saint Louis.

While their story is big and personal to them, too often this significant change in census trends goes unreported.  That is why it is good to see someone like Michael Barone’s summary on census changes in the Washington Examiner.  Thanks to blogs like Kevin Glass or Michael Barone, others who are less familiar with our deep dives into these long-term trends might become more interested into what is rebuilding America’s center of wealth.

But for those with a personal interest, it seems better to apply some kind of a call to action than just that of your own.  What can those families do to help spread the word that incentives really do matter?  Here are three ways to apply this at your next community meeting:

  1. Sponsor a trivia night using the long-term data from our application:  how many of your neighbors really understand how and from your community’s income is rising or falling?
  2. Share your community data with a recent college graduate:  is your son or daughter aware of the connection between how income flow can oftentimes direct him/her to a more prosperous job?
  3. Share your trivia news with your local legislator.  Too often, local decisions are being made with little regard for their true impact.  By sharing census news about what has been changing in your city over the last decade, legislators can make more informed choices.

To measure is to know.  Let’s help spread the knowledge of how America is working today.

Conference Media and Marketing: Video by Travis H. Brown

I recently lead my book tour to CPAC 2013. The How Money Walks booth generated a great deal of media buzz and conference excitement. We used large touch screen televisions to drive interactive data and prompted attendees to “transform their state” with our data. In this video we discuss a few pointers on connecting with media and creating quality interactive engagement at your next conference.

Governor Bobby Jindal rolls out plan to eliminate the Louisiana State Income Tax

Bobby Jindal rolls out State Income Tax Reform with Travis H. Brown’s How Money Walks Data. The Data used by both Governor Jindal and Executive Director of the Louisiana Department of Revenue Tim Barfield can be found in the How Money Walks ebook and app.

Travis H. Brown: Why Taxpayers Are Fleeing California and Flocking to Florida

By Dan Holland

Travis H. Brown is the author of the timely new book, How Money Walks: How $2 Trillion Moved Between the States, and Why It Matters. He is also the CEO and co-founder of Pelopidas, LLC, a St. Louis-based public affairs and advocacy firm and president of Let Voters Decide, a coalition that supports state tax reform and the protection of voters’ rights. We sat down recently to discuss his findings after distilling fifteen years’ worth of IRS taxpayer data which reveal a massive movement of American working wealth.

RealClearMarkets: A lot of people are watching what’s going in California right now, where they just jacked up the state’s personal income tax rate dramatically. Phil Mickelson of course stepped on a big bee’s nest recently with his comments about how he was getting hit hard by California’s high taxes and how he was considering leaving. You’ve also got Texas Governor Rick Perry going into California trying to lure businesses back to his home state where there is no income tax. What’s going on here? Is this a harbinger of things to come?

Travis Brown: Americans understand that the global competition to attract and keep highly talented entrepreneurs is fierce. Phil Mickelson understands that his price of work is higher than that of his competitor Tiger Woods, in part due to the golfers’ two different states of residence (California for Mickelson, Florida for Woods).

Governors who understand tax competition, including Texas Governor Rick Perry, are winning big and are likely to gain more from high tax states. Corporations and individuals that stay in high tax states like New York or Illinois are at a distinct disadvantage long-term. The state governments that thrive from understanding how money walks should serve as a positive example for our federal government.

RCM: Since we’re on the subject of Phil Mickelson and sports, let’s discuss LeBron James for a minute. Do you think taxes played a role in his decision to play for the Miami Heat, rather than the New York Knicks? Could you actually make a case that if New York had lower state taxes, LeBron may very well be wearing a Knicks jersey today? Heck, the Knicks might have even won a championship by now?

Brown: High net worth individuals do not move every year. However, when they do, they understand that it is not what you make that is most important. It is what you keep (in your pocketbook) that counts. LeBron James was likely better off in Miami than New York, even if his endorsement career moved off the court. American small businesses work just like LeBron James: fast on their own court, nimble with taking career risks, and quick to expand into new opportunities when they arise.

In our book, there is a great personal perspective from Joseph Calhoun, CEO of Alhambra Investment Partners. He discusses how ironic it is to attend a home Miami Heat game where so many transplanted New Yorkers are rooting for the Knicks.

RCM: Now, there are obviously a lot of different factors which influence where a person chooses to live. Weather, family and friends, and so forth. Does the IRS taxpayer data you looked at seem to indicate that a state’s income taxes play a leading role in people’s decisions?

Brown: When you look at fifteen years of Internal Revenue Service data, across more than 130 million taxpayers, you can start to observe the patterns of human behaviors. Taxpayers are fleeing from high tax states like California, and flocking to low tax states like Nevada or Texas. The performance of states with no personal income tax is amazing – over $146 billion of net gain of adjusted gross income.

Unfortunately, the reverse is also true – states with the highest personal income rates or per-capita income burden lost over $100 billion in adjusted gross income. Families understand that tax factors are important in their decisions to relocate because the “price of work” varies depending upon where you choose to live.

RCM: Which states are the biggest winners and which states are the biggest losers?

Brown: We dedicate an entire state in the book How Money Walks to Florida, which is far and away America’s biggest winner. The Sunshine State has gained over $86 billion in adjusted gross income (AGI) since 1995, from other states like New York ($16.8 billion), New Jersey ($10.2 billion), and Illinois ($6.2 billion). Since our data tracks active state 1040 tax return changes of residence, this wealth transfer is unlikely to be merely a retirement effect.

New York State lost over $58 billion in AGI, enough money to build 39 Yankee Stadiums. The rate of loss for New York State over fifteen years is $10.7 million every day. The City of New York – just the five boroughs – saw a loss of $43.8 billion, roughly equal to the market value of Time Warner.

RCM: Last question. You’ve obviously spent a considerable amount of time and resources putting your tax migration findings together. If you had to take out your crystal ball, and predict where this whole tax debate is going in the next, let’s say 5 – 10 years, not only on the state level, but on the federal level as well, what would you predict?

Brown: States that ignore positive or negative signals from highly-mobile taxpayers do so at their risk. Low tax states are likely to continue to attract more wealth, as families flock to places where income and opportunity are more welcome. High tax states that lose their economically mobile taxpayers will be faced with even more dramatic decisions on taxing or spending, since their tax base is narrower. Governors and state leaders who champion this reality are likely to inspire or reform Washington, DC, towards a better economic path.

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How State & Local Governments Tax U.S. Businesses

By Travis H. Brown -

During my book tour travels to share information about taxpayer mobility for How Money Walks, I often field the question about how our states and cities attract or discourage business investment within their community.  Lately, there has been more debate in Washington, DC and beyond about how to why to lower corporate income taxes from groups such as the United States Chamber of Commerce.

I had the occasion to join a Cato Institute workshop hosted by Chris Edwards and Richard Rahn where the topic of comparative levels of taxation on American businesses was discussed.  According to Edwards, our federal tax on corporate income generates about $300 billion a year.  While this corporate income tax rate was once thought to be competitive, other countries such as Canada or Japan have since lowered their rates relative to ours.

However, what I found interesting is just how this revenue compares with the widely-variable ways to collect taxes on businesses at the State & Local Government level.  By contrast, Edwards estimates that state and local governments collect about $640 billion a year from various business taxes in 2012.  This is based upon the Council of State Taxation’s annual survey with Ernst & Young.  This order of magnitude alone should interest most corporations regardless of their business structure.

The various modes of taxation applied to business by states and cities also varies widely.  Out of the $640 billion collected, about $245 billion is applied to property taxes.  Nearly $130 billion is collected from sales taxes applied on business purchases.  State applied taxes on corporate income amounts to $46 billion.  This leaves other various taxes collected at $223 billion.

As businesses are forced to flee from high tax regimes in favor of lower tax regimes, it seems equally important to me that state and local governments concern themselves with how their business climate appears from a standpoint of a taxing nexus.  This is true for all industries of business, not just sales & use tax conflicts with Amazon.com.

Chris Edwards also tabulated the actual growth in total state & local government spending.  In 2000, it was estimated at $1.41 trillion among the fifty states.  In 2012, it has grown to $2.31 trillion.  Despite much rhetoric of cutbacks in state & local spending, annual increases as a whole have remained steady.

As our federal government struggles to find new ways to diet, it will remain important for U.S. businesses to pay equal attention to what is happening within and across the states.

Helping Roll Call & Politico Readers Use How Money Walks Apps

For those who can use constituent data to help others understand how America is working, we hope that the How Money Walks applications that are available for both Android and Apple phone users will prove helpful.  Our Apple IOS titling came back a little different, as the “taxpayer data explorer.”

Recently, we had a chance to make such data available to many on Capitol Hill while in Washington, DC, just after the State of the Union speech.  We were pleasantly surprised by the warm welcome by many, who were eager to learn more about state & tax burdens.  Considering the vast armies of lobbyists, appropriators, and defense sequester experts who were bombarding the Hill, we received a very hospitable reception.

The applications allow ordinary taxpayers to become extraordinary community advocates.   By using the app, one can search by city, county, or state, and quickly learn how both people and their taxpayer wealth has been moving over the past 15 years.

To see how we envision that this can assist Congressional staffers, check out this quick video:

For a more detailed summary of how such data was presented along with the Heritage Foundation, Tax Foundation, and the Cato Institute, you might also appreciate this summary: