The Great Migration to Better Politics, Taxes and Sunshine

by Christopher Levarek

"Migration is an expression of the human aspiration for dignity, safety and a better future. It is part of the social fabric, part of our very make-up as a human family"

~ Ban Ki-moon

The United States election is right around the corner and with it comes change. As we approach the end of 2020, which for many held no dull moment, there is a present movement across the United States towards a better tomorrow.

With the rippling effects of the Covid shutdown, West coast wildfires, city riots and a highly volatile stock market, the election adds further opportunity for change and will of course have an impact on policy, taxes and people’s daily lives. In alignment with all this change, there is a growing trend in regards to migration across the United States.

People are fleeing large cities to suburban communities and states holding better tax policy, business friendly legislation and nicer weather. Although this trend did begin to show in 2019, this migration is surely to be exasperated with the election year and we can expect, whatever the outcome, migration patterns to be greatly influenced.

What does this mean for businesses and residents? Let’s dive in.

The Great Migration

Uhaul releases an annual report showing the top growth states annually as well as the annual migration patterns for a given year. “Growth states are calculated by the net gain of one-way U-Haul trucks entering a state versus leaving that state during a calendar year. Migration trends data is compiled from more than 2 million one-way U-Haul truck-sharing transactions that occur annually. “ as per a recent article from U-Haul.

This paints a dramatic picture of overall migrations. For 2019, the top Growth states are listed below 1-10, while the the lowest Growth states numbered 40-50 :

Although, we do not yet have the UHAUL 2020 migration data, we can see this trend is still continuing strong based on existing data gather thus far. According to data from Redfin for Q2 2020, New York, San Francisco and Los Angeles have the biggest “net outflow” or people moving out of those metros.

In addition, a recent report by HireAHelper, a moving company like UHAUL shows similar numbers and we can narrow down the biggest gains and losses in moves since the start of the year or even the start of the pandemic :

What does it mean?

When looking at this data, we see that New York, New Jersey and California, consistently come up as being locations people are moving away from. Yes, there are a number of other locations on the list however, these states seem to appear frequently in Reports from Redfin, Forbes, UHAUL, etc.

Much of this data can be attributed to the pandemic and the growing work-at-home movement. Some data indicates, people are fleeing the cities to take up residence in larger homes and distant suburban communities relative to their previous cramped urban apartments, townhomes and condos.

However, let’s look at some other possible reasons for these migrations :

Taxes

Let’s focus on New Jersey for second. Just recently, among other legislation, New Jersey passed a tax increase for high income earners. Specifically, “Under the new legislation…those earning between $1 million and $5 million will see their rates increase from 8.97 to 10.75 percent on that swath of income.” states a recent report by Tax Foundation. This targets specifically small business owners who will face an enormous hike on taxes.

In fact when we examine the 2020 State Business Tax Climate Index report, a comparison of tax systems across the United States based on how well they are structured, we see something interesting. In order of Worst Tax structure to Best Tax Structure 1-50, California is number 48, New York is number 49 and New Jersey is number 50, (shown above).

Political Policy

California is notorious for state policies that have a dramatic effect on overall business. Without diving into rent control laws as we covered in a previous blog, let’s simply look at two recent legislation which did and would cause business owners or a migration to other states.

Perhaps, the reader saw this recent legislation where California attempted to govern how Uber and Lyft hire/compensate their workers. In summary, this policy reclassified Uber and Lyft workers to employees with benefits instead of independent contractors which is the present job classification. This caused Lyft and Uber to not only go to court with the state but Lyft in fact shutdown all operations putting many out of work.

If people can’t work, they will seek employment elsewhere and If businesses can’t operate profitably, they also will move to states that they can.

Speaking of businesses, Tesla faced restrictions and regulations on how it conducted business in the state of California for the year of 2020. In response, Tesla has begun building a large factory in Austin, Texas and it is surmised, that they will move their HQ to this location.

One major initiative is not only the state legislation and tax restrictions in California, but the welcoming open arms of the business friendly legislation and tax rebates in Texas for this move, roughly a 70% property tax rebate on the newly built factory.

Although California is just one example, political policy definitely drives migration of businesses and residents alike as is visible.

Sunshine

This one of course is not directly tied to the upcoming election, or is it? Could climate change also be a political policy decision?

In any case, the patterns of migration support moves from the North East(New York, New Jersey) to the South East(North Carolina, South Carolina, Florida) and from the West(California) to the South West(Texas, Arizona).

Is it possible that people are simply looking for better climate? Or possibly even related to a baby boomer generation finally retiring seeking warmer weather? We’ll leave that one to the reader.

Here an interesting article on the same subject to provide further insight on this topic of migrating: http://bankrate.com/mortgages/30-year-mortgage-rates/#coronavirus-upended-moving-trends

In Final

It becomes clear that people are moving out of specific areas in the United States for specific reasons and much will be decided by the upcoming election. Depending on the winner, policy and taxes will be shifted towards big/small government, favorable/unfavorable tax initiatives, varying sizes of stimulus budgets, differing trade policy with foreign countries and more.

In any case, we can be sure the outcome will continue to affect migration patterns across the United States. Be sure to vote! As always, Invest Smart.