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NEW YORK, NEW YORK - DECEMBER 09: A person holds a sign that reads, "tax the billionaires, fund the ... [+] workers" in Central Park during the first snow of the season on December 09, 2020 in New York City. (Photo by Noam Galai/Getty Images)

New U.S. Census Bureau figures released in the final month of 2020 show the multi-year net outmigration of people from California, New York, and Illinois has not only continued, the trend has picked up steam. Anyone who thinks this continued loss of population and income will cause progressive politicians who run these blue state governments to refrain from enacting further tax hikes, however, is unfamiliar with the workings of those statehouses and their occupants. In fact, state lawmakers in Sacramento, Albany, and Springfield have already filed legislation for 2021, or are planning to do so, that would impose further state tax increases in jurisdictions where relatively high tax and regulatory burdens are already cost prohibitive and uncompetitive, which is driving people and businesses away.

Take California, where Governor Gavin Newsom (D) and state legislators enacted a multi-billion dollar tax hike on employers back in June. There will soon be another large state tax hike in California if some Golden State legislators get their way in 2021.

On December 7, California Assemblymembers Luz Rivas (D-Arleta) & Daivd Chiu (D-San Francisco) introduced Assembly Bill 71, legislation that would impose a personal income tax hike on earnings above $1 million. The bill would also hike the states corporate income tax, generating more than $2.4 billion in annual revenue.

There were a couple of significant tax hikes that died in the California legislature in 2020, but stand a good chance of being reintroduced in 2021. One of those proposals is Assembly Bill 1253, which wouldve raised Californias top marginal income tax rate, already the nations highest, from 13.3% to 16.8%. That represents a 26.3% increase in the countrys highest top marginal state income tax rate.

Another tax hike that wasnt approved by California lawmakers in 2020 but could be reintroduced in 2021 is found in Assembly Bill 2088, legislation that wouldve imposed a state-level wealth tax. In addition to levying a first-of-its-kind state wealth tax, AB 2088 generated national media attention due to the fact that the bill seeks to tax people long after theyve left California. Legal experts and California lawmakers themselves have already warned that the proposed wealth tax and the way it reaches across state lines violate the U.S. Constitution.

Like California, New York is a Democratic-run, relatively high tax state that has experienced years of domestic net outmigration. Like their counterparts in Sacramento, New York state lawmakers are also interested in imposing tax hikes in 2021 that ostensibly target the rich.

Governor Andrew Cuomo (D) suggested earlier in the year that the prospect of 2021 tax hikes in New York would depend on whether Congress sends additional federal aid to the states. Now Cuomos tune has shifted, with the Governor indicating that another state tax hike is in the offing for New Yorkers in the new year no matter what.

You probably will see tax increases in any event, Governor Cuomo predicted for 2021 during an early December press conference. If the federal government does not send enough additional relief to be deemed adequate by Albany politicians, Cuomo warns it would lead to devastating and dramatic state tax increases for New Yorkers that would hurt families and hurt the economy.

Raising taxes on upper income households, or at least proposing to do so, is a favored activity among progressive politicians, left-leaning think tank fellows, and pundits. While proposals to raise top marginal income tax rates are certainly a way to make well off taxpayers pay even more into state coffers than they already do, such a move would also reduce the job-creating capacity of thousands of small businesses. A fact never mentioned by California, New York, and other state legislators pushing for personal income tax increases on upper income filers is that raising the top marginal income tax rate also hits small businesses that file under the individual income tax system as pass-throughs, which is how most small businesses do their taxes.

In New York for example, a personal income tax increase on income above $1,000,000 is sold as a way to make the rich pay an even larger disproportionate share of income tax collections than is already the case. But such a tax hike would also hit more than 14,000 sole proprietors who file under the individual income tax system in New York, along with more than 42,000 partnership and S-Corporation CCL owners.

Therein lies the challenge with the soak the rich approach to tax policy that is on display in so many blue state capitals. Progressive politicians put forth bills intended to raise taxes on people as rich as Barstool Sports CEO Dave Portnoy. But they end up punishing the mom & pop small businesses with higher taxes that reduce their job-creating capacity, the same small businesses whose existence Mr. Portnoy and other wealthy people are currently saving with their multi-million dollar charity fund.

Illinois voters rejected a 2020 ballot measure that wouldve repealed the states constitutional requirement to have a flat state income tax. As a result of this voter decision, Illinois lawmakers who want to raise the state income tax in 2021 are going to have to try to do so by raising the income tax rate paid by all Illinois taxpayers.

The push for such an income tax hike is reportedly what Speaker Mike Madigan (D), who has been Speaker of the Illinois House for every year but two since 1983, wants to do in 2021. Madigan is pitching a proposed income tax hike as part of his bid to remain Speaker.

The ongoing loss of population diminishes more than the tax base for states like New York, California, and Illinois. It also diminishes their clout in Congress. California is expected to lose a congressional seat for the first time ever in the post-2020 reapportionment of U.S. House seats. New York is projected to give up two congressional seats. Illinois is projected to lose one seat. A common trend among states gaining congressional seats is that they have no or a relatively low state income tax.

The average top marginal income tax rate for the seven states gaining congressional seats after reapportionment (Arizona, Colorado, Florida, Montana, North Carolina and Oregon, and Texas) is 4.45%. Meanwhile, the average top income tax rate of the ten states projected to lose congressional seats (Alabama, California, Illinois, Michigan, Minnesota, New York, Ohio, Pennsylvania, Rhode Island and West Virginia) is 6.65%, more than 49% higher than the average rate for states gaining seats.

In addition to having a lower average tax rate than the states projected to lose seats, the seven states gaining congressional seats have stronger worker protection laws. Right to Work states have laws on the books protecting workers from being forced to join and fund a union as a condition of employment. Of the 10 states projected to lose seats through reapportionment, only three of them are Right to Work states (two of those three - West Virginia and Michigan - only recently enacted their Right to Work laws in the last decade). Of the seven states projected to gain congressional seats, most (four) of them have Right to Work.

A sentiment often heard from people who live in the red states that are gaining population and congressional seats is the concern that new transplants who relocated from blue states will vote for leftist politicians who end up imposing the same progressive policies that caused transplants and their employers to leave their previous state of residence. However, there is evidence to suggest that such concerns are overblown.

A poll released by the Texas Public Policy Foundation in January 2020 found that voters who have relocated to Texas supported President Trump over Hillary Clinton in 2016 by 47% to 35%. It turns out the non-native Texans supported Trump over Clinton by a wider margin that native Texans, who support President Trump 45% to 38%.

This result is similar to the findings of a CNN exit poll in the 2018 Senate race between Cruz and ORourke showing that native Texans favored ORourke by 3% compared to people who moved to Texas supporting Cruz by 15%, Chuck DeVore, Vice President at the Texas Public Policy Foundation and a former California Assemblyman, wrote for Fox News. And an earlier poll by the Texas Tribune and UT Austin found that 57% of Californians who moved to Texas were self-described conservatives compared to 27%liberals.

Business climate denier is a term that some in the California business community have used to describe blue state legislators who dont think the onerous taxation & regulation-driven departure of employers from their state is something to worry about or rectify. That term is also used to describe the blue state lawmakers who will proceed in 2021 as though continuing to ratchet up already uncompetitive tax and regulatory burdens will not have more adverse consequences, both economic and demographic. Fortunately for Californians, New Yorkers, and Illinois residents looking to escape increasingly punitive taxation and regulation, state officials in places like Tennessee, North Carolina, Florida, South Carolina, and Texas are publicly welcoming new residents who are seeking tax and regulatory relief, along with greater economic opportunity.

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California, New York, And Illinois Lawmakers Already Have New Tax Increases Planned For 2021 - Forbes