In the years following the housing crash of 2008, most local housing markets have made a full rebound from the dire straits that befell a huge portion of the population and took the economy with it. Many markets are now even stronger than they were in that time. The recent tax deductions passed by Congress and signed by President Trump in December have put more after tax cash in the pockets of virtually all Americans, yet there is one feature of the bill that has been seen as a detractor for the health of the American economy: State and local tax deductions.
The major reduction has many high earners in higher tax states and cities in a bit of a panic over their new tax liability which they can no longer write off, which has resulted in some high revenue companies and large income earners looking to other parts of the country where the cost of doing business is much less burdensome.
The South has been a large beneficiary of its collective policies of low taxes and other barriers to entry over the past couple decades, particularly in the automotive industry. Since 2000 foreign car manufacturers have anchored themselves in various places throughout the South, creating first, second, and third tier supplier jobs in the surrounding localities and reviving small southern towns, and continue to do so.
Nissan, already based in Smyrna, Tennessee, announced a new $1.8 billion plant in Hunstsville, Alabama. An industry that was once reserved for Detroit and nearby suppliers who could access the Great Lakes has now moved to states filled with blue collar workers and colleges who partner with these manufacturers to produce educated and knowledgeable career employees.
This phenomenon is not reserved for just the South either. High taxes and unwelcoming political landscapes have chased software developers out of its typical Silicon Valley oasis in California to places in Texas, Arizona, and North Dakota. Even the movie industry which gave California its glamour in the first place has found new roots in Atlanta. Boston’s medical research industry has begun migrating toward North Carolina, while Boeing has focused on growth in their South Carolina plant rather than investing in their Seattle headquarters. Charlotte, NC has become a hub for consumer banking when it used to all be set in New York City.
The real estate markets have been affected in similar ways. Costs of living have inflated in places like Chicago, Washington DC, NYC, Los Angeles, San Francisco, and plenty of others to the point that you need a hyper inflated income just to maintain an average, ordinary life. A 2 bedroom in a desirable neighborhood of DC could just the same get a 4 bedroom house on an acre in South Carolina, and more and more people are taking notice of that.
Developers and home builders are flocking to places like the Deep South and Southwest and in many instances own up to 75% of the available housing inventory at a given time, and they’re selling just as fast as they can build. Much of this is related to the vast underdeveloped land in areas surrounding these cities, but it can also be attributed to the desirability of living in an affordable place where the cost of living is reasonable and it’s actually realistic for once to save and start a family. Many people even take pay cuts to move to these places with the understanding that the net value is the same or better.
By now you may be noticing a pattern: No matter the industry, it seems to spell out the same sentiment – People and businesses are moving from traditionally very blue states to traditionally solid red states. This could be a very good thing in the sense of waking up political leaders to the notion that high taxes have strangled their state and local economies to the point where they are now missing out on billions in revenue and everyday transactions.
But there’s a second element to this shift: These citizens moving from these blue states to red states aren’t just abandoning political loyalties while they’re at it. They are still going to maintain their same beliefs in their new homes, which has caused some seemingly “safe” red states to come into question.
This is particularly troubling for places like Georgia and Texas. These higher volumes of people in typically liberal industries such as entertainment and technology have suggested potential political shifting, noted in the 2016 election. And while both states did end up safely red this time around, neither was as comfortable a win as Republicans are used to enjoying. President Trump’s margin of victory in Georgia was 6 points. In Texas it was 9, and in North Carolina it was under 4. Those three states alone account for 59 Electoral Votes and an integral part of any Republican’s strategy for victory.
President Trump fortunately has an advantage in turning over the typically-blue rust belt states of Ohio, Michigan, Wisconsin, and Pennsylvania, while losing by only a point and a half in Minnesota. However, if Republicans want to maintain any share of that success in future elections it’ll mean delivering on economic promises and maintaining the faith of those disaffected by Democrat neglect.
A big question that remains is how all this economic migration through these states will affect the 2020 census, which will not be accounted for in the 2020 elections, but the ones thereafter. This subtle blue-shifting of these deep red states could have proportionally larger consequences than expected if they gain more Electoral value. The issue for Republicans is that this affects their states far more than the blue states. Many of these people and jobs are moving from wildly blue states like New York, California, Massachussetts, and Washington, which will not “miss” them, at least politically speaking. Those states will remain safely blue with or without their votes, and so it’s only these states in the South and elsewhere who could fall victim to their best intentions with their attractive economies.