- Elon Musk, the world's second-richest man, has moved from California — the state with the highest income tax — to Texas, a state with no income tax at all.
- Jeff Bezos and Bill Gates live in Washington, which also has no income tax. Musk's move means the world's three richest people don't have to pay income taxes.
- Nine states don't have an income tax. These states typically bring in revenue from other areas like tourism and natural resources. One CPA told Business Insider that fiscal responsibility also plays a role.
- Other billionaires, like President Donald Trump, are also seeking to move to no-tax states.
- Visit Business Insider's homepage for more stories.
Elon Musk has moved to Texas.
The Tesla and SpaceX CEO confirmed the news on Tuesday at a virtual conference hosted by The Wall Street Journal. "For myself, yes, I have moved to Texas," Musk said, adding that SpaceX was developing its Starship spacecraft in South Texas and that construction of Giga Texas, a new Tesla manufacturing site in Austin, was under way.
These SpaceX and Tesla Texas developments, combined with Musk's repeated threats to leave California this year, had spurred months of speculation that Musk would move to Texas.
The move from California to Texas is a convenient one for Musk, who will now be close to the aforementioned SpaceX and Tesla sites, but there's something else going on. The Lone Star state is one of the nine states without a state income tax, and Musk is getting a big tax break as he leaves California, which has the highest income tax of any state.
Musk, the world's second-richest man, has an estimated net worth of $152 billion, flanked by Jeff Bezos and Bill Gates, who both live in Washington, yet another state without an income tax. That means that the world's three richest people, worth a total $462 billion, don't have to pay state income taxes.
Musk "hit the tipping point," Daniel Geltrude, CPA and founder of accounting and financial consulting firm Geltrude & Company, LLC, told Business Insider. "You become successful enough where you get taxed into migrating," Geltrude said. "That's what Musk is doing. And he's got the billions to afford to pay it."
State income taxes reflect a state's spending problem
Besides Texas and Washington, the other no-income tax states are Alaska, Florida, Nevada, South Dakota, and Wyoming. New Hampshire and Tennessee also fall under this list, but they tax investment income.
Typically, state income taxes go toward the state's budget to pay for things such as infrastructure, education systems, and road maintenance. They accounted for 37% of state tax collections for the fiscal year of 2017, according to the Tax Foundation's most recently available data.
States that don't have an income tax typically compensate for this revenue in other areas: Florida, for example, relies on tourism dollars, while Alaska relies on its natural resources such as oil mining. There's also the fact that some states are just more expensive than others, requiring more taxes.
There are trade-offs; some no-income tax states have higher sales or property taxes as compensation. Tennessee, for example, had the highest combined sales tax rate in the US in 2019, and Texas and Florida have higher than average property taxes, according to BankRate.
But, so too, do some states with income taxes — like California, where Musk used to live.
"California already has one of the highest sales taxes and property taxes (in certain counties) in the United States," Ruby Banipal of global tax practice firm Legamaro Banipal LLP told Business Insider. That's on top of 12.3% state income tax for residents earning $590,743 or more, she added. Breaking tax residency and moving to a lower-tax state is generally "a better financial decision," she said. "These state tax savings begin to add up."
But whether a state has an income tax is also partly a matter of fiscal responsibility, Geltrude said: "Most states don't have revenue problems. They have spending problems."
States that don't have state income tax are managing their finances well enough that they don't have to have one, he added. "They're able to keep their costs in line."
Musk isn't the only billionaire on the move
"Elon Musk is showing that wealth is mobile," Geltrude said. "And the pandemic has shown us that people have the ability to work remotely."
It's all caused a mass migration from high-tax states around the country, he said. This is an acceleration of a trend already under way before the pandemic. Consider billionaire investor Carl Icahn, who announced in 2019 that he and his firm would move to Miami in 2020.
More recently, President Donald Trump has reportedly been eyeing a move to Florida for when his presidency is over. Sources close to Trump told People that his private Mar-A-Lago residence in Palm Beach was being spruced up and expanded. Melania Trump is also reportedly scouting schools in the area for son Baron, People reported.
Other Silicon Valley executives, such as venture capitalist Keith Rabois and Ben Ling of Bling Capital, have headed to no-income tax states like Texas and Florida amid the pandemic. It's likely the Silicon Valley exodus will continue — several other Silicon-valley based firms (like Hewlett-Packard Enterprise) have shifted or plan to shift their headquarters out of California to other "friendlier" jurisdictions, Banipal said.
She said she wouldn't be surprised to see the trend continue. "Low, or no state income tax, business tax incentives, presence of nearby international airports, and a general friendlier attitude towards tech entrepreneurs are among some of the factors that can help these other cities attract new tech talent," she said.
The states left behind have to raise taxes even more to compensate for the budget shortfall created by the flight of residents, Geltrude said. He explained the cyclical effect: Taxing more leaves people with incentive to hit a tipping point, in which they leave for a no-tax state where they can work remotely, which fuels further migration. And once the ultrawealthy like Musk leave, he said, the only people left to tax are the average workers who were promised their taxes wouldn't go up.
As he put it, "Those states aren't learning their lesson, they're continuing to raise taxes and people continue to move."
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