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Never Really Get There

Never Really Get There

People are moving out of New Jersey, New York, Connecticut, California, and Illinois.

They are moving into Tennessee, Texas, Florida, and other places in the South.

This is a fact.

My brother is from Ohio—he was recently visiting his son (my nephew) in New York. While he was there, he was approached by a gypsy cab—a random Lincoln Town Car. The driver offered to take him to the airport for 50 bucks.

If you’re an observer of markets, economics, and politics, there is literally nothing better in the world than talking to drivers. Uber drivers and cab drivers have insights into human behavior that you or I cannot possibly comprehend.

Anyway, the driver said that not too long ago, he was a driver for the rich and famous. He rattled off a list of celebrities he used to drive around—definitely people you’ve heard of. Said he was making $250,000 a year as a driver.

Post-COVID, all of his clients disappeared. They all moved to Florida, mostly to get away from the taxes, which are going up. He’s been reduced to gypsy cab work, taking Ohioans to the airport.

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The driver is thinking about getting out of the driving business altogether and buying some rental properties. He has to do something to survive.

He was angry and blamed it all on Governor Cuomo and Mayor de Blasio. He called them a “mafia,” and said they had permanently destroyed the city.

“The city will bounce back,” my brother offered.

“No,” he said, “it is dead forever.”

The South Will Rise Again

A few years ago, I wrote a piece for Bloomberg about the 2017 Tax Reform called “The South Will Rise Again Under GOP Tax Plan.”

I wrote:

My prediction: Over time, New York City will lose its status as the intellectual and cultural capital of America. The real estate market in California, at stretched valuations, will suffer. Minnesota, Oregon, Iowa, Maine and others will also feel the pain. Florida and Texas will become the new centers of finance and innovation, with real estate values in Austin and Miami -- and even Nashville -- reaching valuations once reserved for California and New York over the course of a few decades.

All of this—literally all of it—has come to pass.

It is all about incentives—rational economic actors seek to minimize their tax burden. You probably saw that taxes in California are going up, not down—to a top rate of 16.8% a year. You probably saw that Governor Phil Murphy just passed a millionaires’ tax of 10.75% in New Jersey, and that New York and Connecticut are considering similar taxes.

The dynamic is as follows: taxes go up, people leave, which causes the tax base to dwindle, which forces states to raise taxes on the remaining residents, then more people leave, et cetera.

Eventually, it results in financial collapse.

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The policy question here is whether the federal government will ride to the rescue of the states. That will be decided in the next election.

The states should suffer the consequences of their reckless tax-and-spend policies—there is a chance that they won’t.

Only the Beginning

My fear is that the population migration is only in the early innings.

One of the consequences is that it will redraw the electoral map in ways that we do not fully understand. Red states will get more votes at the expense of blue states. But they may vote in ways that are impossible to predict.

Where I live, in South Carolina, the state is not as reliably red as it used to be. Senator Lindsey Graham may lose his bid for re-election. But that might be less of a function of demographics, and more of a result of the massive amount of campaign contributions that his challenger, Jaime Harrison, has received from out of state.

In my investing life, I like to say that I like businesses with evil genius business models. Planet Fitness probably has the best evil genius business model in history. Charge people $12 a month, get 10,000 people signed up for a single gym, and then watch as only 300 of them use it. The other 9,700 will be too lazy to cancel a $12 monthly payment.

In the process, Planet Fitness puts all the $90-a-month black-iron gyms out of business.

The cap on state and local tax deductions was also an evil genius political masterstroke. By limiting the deduction to $10,000, it increased the incentive for people to move out of high-tax states, which also happen to be blue states.

Philosophically, I agree with it. The federal government shouldn’t subsidize high-tax states. I say this living in a state where taxes are not especially low.

You probably saw the back-and-forth between comedian Jerry Seinfeld and whatever-he-is James Altucher, about the future of New York. As much as I hate to say it, I agree with Altucher—New York is done, stick a fork in it.

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At this point, if I told you that New York will never open up, you would probably believe me. But, of course, it will open up—long after it is too late.

You probably won’t be surprised to find out that people don’t like paying taxes. And if the emotional hurdles and frictional costs of moving are not too great, they’ll move. People aren’t always rational, but when it comes to taxes, they usually are.

It will take decades before anyone figures this out.

As an aside, please check out my new mix Ecstasy on Soundcloud. It’s sure to change your mood for the better.

Jared Dillian

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Oct. 7, 2020, 2:09 p.m.

Some of what you’ve said makes logical sense, but I think you overestimate the effect of taxation on people’s decisions.

Take Minnesota (since you mentioned it), it’s a high income tax state, but we also get a higher degree of services from the state (state taxes cover education, parks maintenance, road maintenance, etc).  People don’t move to Minnesota because of the tax rate, they move because of the job opportunities, general higher level of education, the parks and lakes (fishing and “second homes on the lake”), and other “quality of life” concerns.  With the exception of Boomers in mostly wealthy suburbs, they understand that taxation is what pays for the services that Minnesota wants (and Boomer resistance to educating other generations is what has caused Minnesota’s education ranking to slip).  And Minnesota’s positive low (but relatively consistent) population growth rate is evidence of that.  The climate is likely a much greater deterrent than the tax rates.

Contrast that with South Carolina: Per a previous ranking of states for business climate, “South Carolina rates as one of the worst states in quality of life, ranking among the worst states in measures such as the presence of arts, entertainment, and recreation facilities and the presence of violent crime. That the state is a less attractive place to live might help explain why it also has a relatively small share of professionals. South Carolina has a below average share of adults with bachelor’s degrees and adults with graduate and professional degrees.”

Admittedly, that was from USA Today, and rankings are subjective, but the comments aren’t.  Taxes are one consideration, but not even the most important for most people.  To use your own previous statements, don’t project your feelings onto the market’s actions; follow the data, and adjust your model if the results don’t match your expectations.
Oct. 3, 2020, 5:30 a.m.

Very interesting. Has taxes started to rise in the states people are moving to as well?

Oct. 2, 2020, 6:33 p.m.

High taxes obviously contribute to people leaving a state, but there are other reasons.  In California I am seeing young people leave.  While their personal taxes may not be high, the cost of living is.  Every new law in this state seems to come with a cost.  They put in cap and trade and boom, gas goes up 10-12 cents per gallon, not to mention all the other fees/taxes that are included in gasoline which has led us to the highest gas prices in the nation including Hawaii.  Then the politicians accuse the oil companies of profiteering.  What is now being taught in schools is also causing young families to leave.  I like to be opened minded, but do kindergarten kids really need to be taught about the 25 or whatever it is different gender categories?  The covid pandemic has now brought out the worst in many politicians as they grab unchecked power.  Our homeless situation is well know.  Even the weather is not as good as it was when I grew up in this state (although the air is a lot cleaner), and we cannot depend on having electricity when it gets hot.  I may sound like a whiner, but when my son and his family left, and my neighbor’s kid’s family, and several others that I know, these were just some of the reasons given for leaving California.  My son left for Boise, my neighbor’s kid for Nashville, most the others left for Texas.  Interestingly enough, I live in Orange County, we are seeing many of our neighbors leave the state, but their homes are being purchased by people fleeing Los Angeles and some coming from New York.  It’s not the high taxes driving them here, but supposedly their fear for their safety in their former urban areas.  Interesting and unsettling times.
Oct. 1, 2020, 8:54 p.m.

While there appears to be an exodus from the coastal large cities, I doubt that it will change their political complexion.  But the addition of thousands of folks from predominantly “blue” states will certainly change the political complexion of the recipient states, and clearly toward a “bluer” tone.  The electoral college map will never be the same again.

Douglas Aeling
Oct. 1, 2020, 2:49 p.m.

The people who don’t like paying taxes apparently haven’t heard, or don’t believe, the maxim about death and taxes.  They also aren’t very good at thinking things through.

Let’s say the population of a sleepy, affordable town in a red state triples in a generation, thanks to all these blue state tax avoiders.  More people means more houses, more utility demand, more roads, more parking lots, more schools, more bike trails, more libraries, more police officers etc…and more laws, rules and regulations concerning all of those things.  Most of which will be provided by government at some level.  How does government pay for that?  More taxation of course, and/or borrowing, which is just taxation deferred.  And people will wonder what happened to the sleepy, affordable little town to which they had “escaped” not so long ago.

But wait, there’s more.  All those blue state refugees will bring their blue state values, which will be reflected in their votes.  It won’t be “impossible to predict”, it will be quite easy to predict.  A once solidly red state will become purple, and then blue.  I’ve seen it happen in my home state of Colorado, it’s nearly done in Virginia, and Texas is well on its way.

It’s not really a question of taxes or no taxes, it’s how much do you want your government to do, and what are you willing to pay for it.  The successful states will strike the right balance between people coming for what they like and are willing to pay for, and leaving for what they don’t and won’t.
Oct. 1, 2020, 12:32 p.m.

I find it interesting that some of the most knowledgeable commutators out there, do not get what is happening in America.  While some people are leaving the big cities, right now they are not exactly safe.  What happens when the pandemic is over is the real tell.  As to your commentary on taxes, people have a choice, live in high tax blue states and have a functioning government or live in a red state for a few % less. The state of NY could lose 15% of its GDP and still have a larger market than Florida.  Texas will never catch California. Who’s to income tax rate is 13% on over 1 million by the way. CA has the lowest property taxes.  Total tax burden is right in the middle of the states.

Trump’s tax bill raised taxes on a large part of the upper middle class.  Since the bump from the tax bill, not including the pandemic quarters, GDP growth has been 25% slower than President Obama’s last term.  That is 2.3% vs 2.9%.  While there could be many reasons as to why the economy was slowing.  It correlated with raising taxes on the upper middle class.

If the high tax states were actually mismanaged then maybe you have a point.  When you look at contribution to GDP by state 28 states contribute 1% or less. Most are red states.  Almost 50% of GDP pre pandemic was 10 Blue states. Hurting blue state hurts everyone.
Oct. 1, 2020, 11:56 a.m.

Nice article, Jared. Interesting note on evil genius. Definitely evil. Minor quibble. Doesn’t seem right to say that with no state tax deduction the federal government is subsidizing high tax states. That is, if you believe local authorities have priority to income. The federal government is taxing on income that is already reduced by taxes. It’s like taxing money that isn’t there. Or at the least, it’s a hike on overall taxes paid. Probably semantics. But to favor no or lower state tax deduction is to favor increased taxes. Like you say, nobody likes to pay more taxes. But more tax is often hidden in language.
Oct. 1, 2020, 11:42 a.m.

I have to tell you, this one really resonates.  I spent the summer in FL to escape NYC and coming back to work downtown feels like it was after 9/11.  On the flip side, I’m batting away unsolicited offers for the vacant place I have in FL.

On top of that, I now have clients in South Beach.  That used to be the place to show up for a conference, now their there full time as refugees from NYC.

Being in NYC always gave you access.  It’s just not there at the moment.

Most of the banks have told middle and back-office there not going back until middle of ‘21 ....

Jim Johnson 34645
Oct. 1, 2020, 11:16 a.m.

Maybe if enough folks bug out of the extreme high density neighborhoods, the Dems can follow their green agenda and plant trees where buildings once stood and revert that arid landscape back to woods and grass.  No doubt the arrival of the next Ice Age will be hastened with such a “green” agenda. 

I read somewhere there are around 100,000 square miles of roof and roads in the USA.  Given that the central USA is has lots of rocks and grass anyway, it would seem that a huge chunk of that barren desert was converted from the forests and fields east of the Mississippi and west of the Rocky’s. 

Here is an economic thought for you long term folks, where is agribusiness going to go when the Ogalalla “dries up?”  This is supposed to happen around 2035.  15 years is not very long.  I suspect that when that happens New Mexico will have to stop pumping ground water into the Pecos which will affect areas of West Texas.  Also, the Ogalalla southern terminus is around Midland/Odessa, ie the Permian Basin.  No water no fracking.  I really don’t think folks are looking beyond the end of their noses.

The only reason rising seas is a problem is money invested by humans in ocean front property.  Big tears over the future property losses.  Let us reflect: huge ice on the earth’s crust creates a depression (no telling how tall Manhattan was before a “mile” of Ice covered it.  With the ice gone the land to the north of the Great Lakes is slowly rebounding to “normal.”  In time Chicago will become another Venice.

We don’t need to green, but we do need to think in “sustainable” terms. 

Hell, even Yellowstone is due to blow.  It will fertilize the Great Plains and possibly New Jersey.  Seems like a Krakatoa event to me.

Then of course for a similar GDP, China has 4-7 time more carbon dioxide emissions than the USA, yet we must reduce ours.  Something ain’t right.

Love the writings and usually learn something new. 
Thank you

Jim Johnson
Greenfield, MO (

Steve Cernuto
Oct. 1, 2020, 10:39 a.m.

People are definitely irrational. Living in the south now I see people move in from other parts of the country because they love it here but then vote in the same type of politicians that created the mess they left.

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