Americans Flock to Low-Cost States in 2023
The year 2023 saw a significant trend of Americans relocating to states with a lower cost of living, with Texas and Florida emerging as the top choices for in-bound migrations. According to the latest data, Texas added a substantial 473,453 residents, while Florida welcomed 365,205 new residents between July 1, 2022, and July 1, 2023. On the flip side, New York lost 101,984 residents, and California saw a decline of 75,423 residents during the same period.
One of the key factors driving this migration pattern is the disparity in tax structures among different states. Moving from a high-tax state to a no-income-tax state, such as Texas or Florida, can result in substantial savings on income taxes. However, it’s important to note that while these states don’t levy state income tax, property taxes should also be taken into consideration. For instance, Texas homeowners face an average effective property tax rate of 1.60%, significantly higher than the national average of 0.99%. On the other hand, California homeowners contend with an average effective property tax rate of 0.71% and a state income tax rate ranging from 1% to 12.3%.
Jared Walczak, vice president of state projects at the Tax Foundation, emphasized the importance of considering the overall value of a state to individuals. He pointed out that just like comparing products in a store, people should not only focus on the cheapest option but also consider the value each state offers. This value, he noted, can vary significantly from person to person, indicating that tax considerations should be just one aspect of the decision-making process.
“When people compare shops, they don’t always buy the cheapest thing … they go for value. And what you value may be different from person to person,” Walczak told Yahoo Finance. This underscores the need for individuals to evaluate the broader picture, taking into account factors such as job opportunities, quality of life, healthcare, education, and overall cost of living, in addition to tax implications.
Edvin Givargis, a state and local tax managing director at Andersen, highlighted the necessity of tax revenue for essential services. He pointed out that revenue generated from taxes is crucial for funding infrastructure and public services, stating, “You need money to build a road to drive on.” Givargis’ statement underscores the complex balance between tax burden and the provision of public goods, further emphasizing the multifaceted nature of the decision to relocate based on tax considerations.
Givargis also drew attention to the impact of real estate prices on the overall cost of living, cautioning that while relocating to a state with no income tax may result in immediate savings, the appreciation of home prices could offset these gains. “If you look at real estate prices, they’re going up. So you’ve saved income taxes, but homes adjust to fair market value,” Givargis said. This insight underscores the importance of considering long-term financial implications, including housing costs, when evaluating the financial benefits of relocating to a state with a different tax structure.