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Lower US State Tax Drives Population Inflows, Home Price Rises

2019/12/9 — 12:51

photo credit: GotCredit, https://bit.ly/36mTNF7 ,  flickr, cc by 2.0

photo credit: GotCredit, https://bit.ly/36mTNF7 , flickr, cc by 2.0

編按 : 作者繼早前「環球減稅搶飯碗,港府自滿毀長城」一文後,再次撰文,以美國不同州份的稅制為例,分析稅率高低對人口及資金流動的影響,最後寄語香港:低稅率的優勢已經近乎完全消失,港府目前更傾向先從人民手上拿錢,然後再發放所謂的「經濟救助措施」,當中的潛在風險,不可不察。

We have discussed how Hong Kong’s low tax reputation was increasingly at risk as even large economies have caught up in lowering their top tax brackets in recent years (see HK govt complacency losing out in competitive tax cutting). One of the most aggressive of these being the USA under the pro-business Trump administration.

In this article we explore further how the intra-USA tax competition is panning out and how this may impact property prices in the longer term.

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Lower corporate tax leads to more employment

Looking at the current top corporate tax rates amongst the US states, it is possible to reach a conclusion that those states with low tax rates may be enjoying large growths in populations as companies move their activities to these jurisdictions.

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In our study in the rest of the article, we will focus on several poster-child states, namely Texas, Delaware, Florida (known for lower taxes), as well as California, New York, and Illinois (famed for more regulations and higher burden for the corporates). These will be coloured orange in subsequent charts.

In low corporate tax states, such as Nevada/Washing/S Dakota (marked green), population growths reached as high as mid teens over the past ten years (2010-2019), compared to the high tax states (marked red) with low single digit growth or even falls (eg Illinois):

Individual taxes also impact population movements

Just having lower corporate taxes may not be enough, as take-home pay for the employees will also impact on the desire of people to stay or leave a state. We therefore looked also at tax burden on residents, which measures all state and local taxes, and specifically, property taxes, income taxes, and sales and excise taxes.

The outcome of the study are equally persuasive, with our highlighted low tax states again featuring high population growths (Delaware, Florida, Texas), whilst the high tax burden states New York, alongside Hawaii & Maine seeing anaemic increases over the same decade:

Changes in tax rates an easy policy tool to spur growth?

So which states have done the most to attract immigration? Delaware and Florida (within our highlight set) seemed to have done the most, and indeed achieved the best results, compared to Hawaii and Louisiana on the other extreme, resulting in minimal growth in the number of residents over a decade:

So here may be the best guide for anyone contemplating moves, be it for jobs, studies, or even retirements, the lowest current state of tax burdens in descending order:

Other personal reasons aside, it seems our highlight states of Delaware and Florida should be on most mover’s consideration list, whilst even those in jobs or studies now may want to think twice fore remaining in places like New York and Hawaii?

Immigration – housing demand – home price outperformance

The natural conclusion from the above studies must be that, for property investors, level of taxes would have a bearing on the performance of home prices, and tax cuts should lead to outperformance.

Again, the states with tax cuts over the past decade (eg, Florida) saw some of the best home price increases, whereas Louisiana and Vermont were much more modest in their price action over the same period:

So in conclusion, property investing may benefit from buying in accommodative tax jurisdictions and even more in jurisdictions where large reductions in tax burdens are being implemented. This is certainly a lesson for Hong Kong, where our globally competitive low tax advantage has now become almost non-existent, when the power hogging administrators prefer taking the money from the people first and then return little favours in the form of the so called ‘Economic Relief Measures’.

Finally, here is the map view of the US population growth rates, with the names of the states coded in high to low tax change colours:

The author would like to thank Christy Leung of City University of Hong Kong for assisting in data collection, analysis, and drafting this article.

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