Building away from Taxpayer Burdens

The 2019 IRS migration data released last month showed Florida, Texas, and Arizona gaining the most adjusted gross income (AGI). Taxpayers fled from California, Illinois, and New York, all of which suffer from financial issues, including ballooning Taxpayer Burdens.

The Taxpayer Burden “is the approximate dollar amount that would be required of each taxpayer in order to pay off all of a government's liabilities today.” To pay these liabilities off, taxes will inevitably be raised. Taxpayers might not want to pay more taxes, thus feeling incentivized to move.

For 2020, the year of COVID, taxpayers may want to know how such trends have been affected. It is unclear when the new data will be released given the late release of the previous year’s IRS migration data.

The State of the Cities Data Systems (SOCDS) data on building permits from the U.S Department of Housing and Urban Development (HUD) may serve as a proxy. When people move, especially in large numbers, that is often reflected in the number of new building permits issued to accommodate new residents. The 2020 data was released earlier this month, with a breakdown for single-family building permits:

The four states with the largest increase in single-family permits were Texas, Florida, North Carolina, and Arizona--three of which were states that had the highest inflow of AGI. Texas and Florida had 158,432 and 115,242 permits respectively, while North Carolina and Arizona had 60,468 and 42,277. This would suggest that the IRS migration trends continued through the pandemic, or at least that the increase in taxpayers and AGI may have contributed to increasing home building activity.

According to the U.S Census Bureau, single-family housing is defined as “fully detached, semi-detached, row houses, and townhouses.” Multi-family housing includes “residential buildings containing units built one on top of another and those built side-by-side which do not have a ground-to-root wall and/or have common facilities.” Apartment complexes generally found in dense urban areas clearly qualify as multi-family housing.

In 2020, the number of multi-family permits fell by 32,180 for the nation, while single-family permits increased by a whopping 117,444. As multi-family housing correlates to some extent with urban areas, this may indicate the urban growth is slowing down. One possible explanation for this trend may be connected to people in certain occupations transitioning to remote work during COVID, particularly those with higher salaries.

For many companies, more flexible remote office policies will be the future. As forecasted in The future of work after COVID-19 by McKinsey, “20 to 25 percent of the workforces in advanced economies could work from home between three and five days a week.” More taxpayers may be leaving their apartments in the city for the suburban lifestyle, helping to explain both the decrease in multi-family permits and the increase in single-family ones.

If taxpayers can work from the suburbs instead of the city, then it is possible that they can work remotely from other states. The necessity of living in certain states for job opportunities may have decreased, so that taxpayers are free to head where they may retain more of their salaries by paying lower taxes.

Here are the Taxpayer Burdens for the states mentioned above:

Arizona, Florida, North Carolina, and Texas have smaller Taxpayer Burdens compared to New York, California, and Illinois. There certainly may be other factors at play here, as Texas isn’t too far off of New York or even California with its Taxpayer Burden. What is certain; however, is the correlation between Taxpayer Burdens and single-family permits among these states. Taxpayers are building their homes away from large Taxpayer Burdens.

Joshua Terry is a data research intern at Truth in Accounting.