Companies and people are moving to low-tax states

Last month, hedge fund Citadel announced it was leaving its longtime home state of Illinois for Florida. The announcement comes on the heels of several other large employers exiting the Land of Lincoln, including Boeing, which is moving to Virginia, and Caterpillar, which is moving to Texas. 

While each departure tends to be advertised as a simple “strategic decision,” the decision of major companies to uproot themselves and start over elsewhere reveals a larger pattern taking place across not just Illinois but much of the country. Scores of companies are choosing to leave high-tax states for low-tax right to work states, concluding that fewer taxes, more efficient and affordable labor, less government regulation and a better business environment will make a move worthwhile. 

In just the last three years alone, several prominent companies in California like Charles Schwab, Oracle, Tesla and Hewlett Packard have fled the state for Texas. In New York, several banks and financial intuitions like Credit Suisse, Goldman Sachs, Morgan Stanley and Citygroup have aggressively expanded operations in states like Florida, North Carolina, Tennessee and Utah, with some openly contemplating leaving the Big Apple entirely. 

Those are just the big names. A slew of small and medium-sized companies are also calling it quits in states with difficult business environments, hedging their bets they will be more successful elsewhere.  

The Hoover Institution notes that in California, an estimated 13,000 businesses left the Golden State between 2009 and 2016. This data is consistent with numerous business rankings that routinely rate states like California, New York and Illinois as some of the worse states to operate a business. 

The decision of so many companies to relocate to greener pastures has significant implications for local residents and consumers who rely on these businesses for employment opportunities, benefits, and services. 

If a large employer decides to leave a small town, the entire community will feel the effects. This is also true for state and city governments that often depend on property taxes for revenue generation. They count on this tax revenue to help fund a variety of public services such as schools, parks, police and health and human services. 

In a worst-case scenario, the loss of tax revenue can facilitate urban decline. The same logic applies to the lucky recipients of business relocations. In addition to local job creation, these companies frequently bring with them a new source of tax revenue, often increasing regional property values and incentivizing more people to move to the area. 

This trend is increasingly apparent in American demographic and census data. 

According to 2020 data from the U.S. Census Bureau, the fastest growing states in the country were in the South, Mountain West, and Sunbelt. The majority of these states have low tax burdens, and some have no state income tax at all. In the Tax Foundation’s 2022 Business Tax Climate Index, seven out of 10 states with the best tax climate were states with no state income taxes. These include Wyoming, South Dakota, Alaska, Florida, Nevada, Tennessee and New Hampshire, which levies taxes on interest and dividend income but not wages or salary. 

In contrast, many of the slowest growing states, or states that lost population through outward migration, carry some of the heaviest tax burdens. For instance, California, New Jersey and New York gained population but at a fraction of the speed that low-tax states did. Others, like Illinois, lost population. 

While a direct relationship between state population trends and business relocations remains unproven, there is at least a strong correlation between them. Population growth seems to accompany business and employment growth. Simply put, people often choose to vote with their feet and move to places with ample job opportunities.

If Citadel or other large employers decide to move from Chicago to Miami, chances are a large number of their employees will follow, should they desire to keep their jobs. Of course, this does not mean other factors don’t play a role in something as complex as the decision to relocate. People choose to move for various reasons, including improved safety, closer proximity to family, retirement or to live in a warmer climate. 

However, economic considerations are a significant driver. In a 2021 Annual National Movers study, relocation company United Van Lines found that the number one reason consumers gave for moving was for a Job/Transfer (31.8%). This was the most popular answer for every year going back to 2015.

The same is true for businesses. Companies prefer to operate in a good business environment where low taxes and a light regulatory environment create the right conditions for profitability. As more and more businesses contemplate relocating operations, states like Illinois should ask themselves whether their policies are fostering a healthy business environment or pushing employers away, harming residents and consumers in the process. How they choose to answer this question may make all the difference.

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