Revovulotion on Wheels
Yesterday I wrote about the forces that pushing Rhode-Island to change its tax code into a more reasonable one. Today, while reading this article in the Barron I found out that this phenomenon is even bigger.
From 2000 through 2004, a net 1.3 million people moved out of states with taxes on ordinary income and into those without such taxes, says Richard Vedder, an economics professor at Ohio University. While climate clearly has played a role in the moves — the destinations are often in the Sunbelt — many of the low-tax states posting gains aren’t generally considered dream spots: Nevada, New Hampshire, South Dakota, Tennessee and Wyoming.
"It’s a stealth migration, and it’s one of the biggest, most significant yet least recognized movements of the population in American history," says Vedder. "People are voting with their feet to say that taxes do matter."
But the biggest question remains open, what will force the federal government to move toward flat tax rate. The fact is that Bush’s tax reliefs are not a change but a candy he hands to the voters. Moreover the chance to make a real reform in the federal government tax was wasted by this administration.
While people can move comparatively easily between states this is not a real option when hoping to find some incentive that force change in Washington DC.
THE LOGJAM IN WASHINGTON, meanwhile, has left many taxpayers increasingly impatient. Bush’s annual tax-relief measures over the past five years were seen as incremental moves toward tax reform. Indeed, a reduction in rates on ordinary income, dividends and capital gains was promising. But with the federal budget increasingly strained by the prolonged war in Iraq and the need for hurricane disaster relief, President Bush is under political pressure to stop cutting taxes, says Dan Clifton, chief economist for Americans for Tax Reform, a taxpayer-advocacy group in Washington.
The federal government’s alternative minimum tax is perhaps causing the most angst. Originally created for the super rich in the 1960s, the AMT is whacking more and more middle-income earners. This tax, which strips taxpayers of almost all deductions, is more likely to strike taxpayers who live in high-tax states. "The AMT can be so bad that I have actually recommended that some of my clients move to avoid it," says Cal Brown, a financial adviser at the Monitor Group in McLean, Va.
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