Makers, Takers, and the New Tax Law

President Trump may have called certain wretched Third World countries cesspools, or equivalent. Writing at Forbes, William Baldwin calls eight states “sinkholes” and calculates what they call the “soak’em score” of each.

Do you live in a sinkhole state? There are eight of them, led by California and New York. These are places where the population dependent on the state — for employment, welfare or a pension — is larger than the population feeding it.

That excess of takers over makers is recipe enough for trouble when the next recession hits. But now some of the sinkholes have a new worry.

The Trump tax law enacted in December just about killed the federal deduction that prosperous people take for state income taxes. In states with stiff taxes, the cost of living has suddenly gone up.

Now high-income folks who pay the bills for big government in California, Illinois and New York will be even more motivated to decamp for Nevada, Florida or Texas.

I’ve quantified the Trump tax problem in the tables as a Soak ’em Score. This is the percentage of state tax revenues (from all kinds of taxes) coming from income taxes on people with incomes over $500,000. That tax revenue is vulnerable. Not every high earner can relocate, but a lot can.

It is worth remembering Forbes’ target audience is those with incomes over $500,000. Four of the eight “sinkhole” states have a high “soak’em score,” they are CA, CT, IL, and NY. Politically, all four are bluer than blue.

The other four “sinkhole” states - AK, LA, MS, and WV - have low “soak’em scores, and are thus not so vulnerable to the wealthy decamping for low tax havens.