Editorial Staff

Study Says Interstate Tax Competition, Relocation Subsidies Exacerbate Telecommuting Trends

/in , , , , /by Editorial Staff
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

BOSTON – A spate of new incentive and subsidy programs seeking to lure talented workers and innovative businesses away from their home states could constitute an additional challenge to Massachusetts’ economic and fiscal recovery from COVID-19, according to a new study published by Pioneer Institute.

In recent years, dozens of cities and states around the country have begun subsidizing moving costs, housing prices, and even student loan payments for new residents, usually in an effort to expand their tax bases and boost their economies. As employers are pressured to allow telecommuting more broadly after the pandemic, this, coupled with high housing costs in Massachusetts, leaves major job centers like Boston vulnerable to an exodus of economic activity.

“Between the soaring costs of living, rise of telecommuting, and incentive programs to move elsewhere, it’s a perfect storm,” said Andrew Mikula, author of The Big Lure: Interstate Competition Exacerbates the Economic Fallout from Telecommuting Trends. “With such a fluid situation on workforce mobility, no one can take for granted that Boston’s past labor market advantages will protect it from the effects of a business-unfriendly environment in a post-COVID world.”

Of the 37 U.S. cities that pay residents to move there, 28 have median housing prices less than half that of Massachusetts, according to MakeMyMove.com. Several in the rural Midwest, where real estate is especially cheap, will give land to newcomers for free. Others focused on attracting younger talent offer free WiFi, access to coworking spaces, and, in Northwest Arkansas, even a brand-new mountain bike.

While it’s too early to know whether these programs actually translate into long-term economic benefits for the cities and states they aim to revive, the sheer scale of interest in “pay you to relocate” deals should be concerning to those in traditional job centers. Tulsa, Oklahoma, a city of 400,000 people, has received more than 20,000 applications for its relocation incentive program since 2018. Topeka, Kansas, population 130,000, received over 3,500 within its program’s first 30 days. The COVID-19 pandemic has already reduced the number of jobs in Massachusetts, and programs like these could make it easier for workers of all stripes to leave as well.

The new study also emphasizes the lengths to which jurisdictions have gone to attract corporations across state lines in recent years, with tax breaks associated with landing Amazon’s second headquarters and Wisconsin’s Foxconn deal being prime examples. A 2020 Princeton study found that U.S. state and local governments use tax incentives to lure companies worth at least $30 billion annually. In 2018, at least 11 proposals for Amazon’s second headquarters were valued at $1 billion or more.

These economic development strategies may in part explain the steady increase in the share of corporations that change locations in a given period. In the 1990s, the three-year migration rate for large firms in the U.S. was about 3 percent. By the early 2010s, it was nearly 6 percent.

“Attracting and retaining talent has been a big part of the Boston renaissance,” said Pioneer Institute Executive Director Jim Stergios. “As we come out of the pandemic, we know that telecommuting trends will continue to change the calculus on where to locate. With cities and states offering our younger, highly mobile residents and start-ups cheaper and roomier locales as well as generous subsidies, state policymakers should avoid tax and regulatory policies that exacerbate the cost of living and doing business in Massachusetts.”

About the Author

Andrew Mikula is Economic Research Analyst at Pioneer Institute. Mr. Mikula was previously a Lovett & Ruth Peters Economic Opportunity Fellow at Pioneer Institute and studied economics at Bates College.

About Pioneer

Pioneer’s mission is to develop and communicate dynamic ideas that advance prosperity and a vibrant civic life in Massachusetts and beyond. Pioneer’s vision of success is a state and nation where our people can prosper and our society thrive because we enjoy world-class options in education, healthcare, transportation and economic opportunity, and where our government is limited, accountable and transparent. Pioneer values an America where our citizenry is well-educated and willing to test our beliefs based on facts and the free exchange of ideas, and committed to liberty, personal responsibility, and free enterprise.

Get Updates on Our Economic Opportunity Research

Related Posts:

Cris Ramón on How to Build Up Immigrant Businesses

This week on JobMakers, host Denzil Mohammed talks with Cris Ramón, son of immigrants from El Salvador, immigration policy analyst, and coauthor of the new report, Immigrant Entrepreneurship: Economic Potential and Obstacles to Success published by the Bipartisan Policy Center.

Taxation Without Legislation: Exploring Inflation’s Causes, Curses & Cures

Hubwonk host Joe Selvaggi talks with Bloomberg Columnist and National Review Editor Ramesh Ponnuru about the reasons for the sustained spike in inflation, its impact on savers and consumers, the possible policy remedies, and the likely intensity and duration of this cycle.

Hubwonk360 Video: If we tax them, will they leave?

In this brief, six-minute video, Pioneer Institute Executive Director Jim Stergios and Director of Government Transparency, Mary Z. Connaughton, walk through an amendment to the Massachusetts constitution that could dramatically increase the income tax on retirees and small businesses.

Julie King Brings Authentic Mexican Cuisine to Boston

This week on JobMakers, host Denzil Mohammed talks with Julie King, immigrant from Mexico and founder of Villa Mexico Café in the financial district of Boston. They discuss the challenges of re-launching a career in a new country. It’s not atypical for an immigrant to start at a lower rung of the economic and social ladder than they previously enjoyed - but it’s a win when they persevere despite the pains, and thrive.

Lifelines for the Untethered: Research to Reach and Recover Homeless Americans

This week on Hubwonk, host Joe Selvaggi talks with Stephen Eide, Senior Fellow at the Manhattan Institute about his newly released book, Homelessness in America: The History and Tragedy of an Intractable Social Problem, in which he asserts that a better understanding of the many challenges facing each homeless individual can lead to a tailored and more durable policy solution to this enduring societal problem.

As States Compete for Talent and Families, Massachusetts Experienced a Six-Fold Increase in Lost Wealth Compared to a Decade Earlier

With competition for businesses and talent heating up across the country, in 2020 Massachusetts shed taxpayers and wealth at a clip six times faster than even just a decade ago. Between 2010 to 2020, Massachusetts’ net loss of adjusted gross Income (AGI) to other states due to migration grew from $422 million to $2.6 billion, according to recently released IRS data now available on Pioneer Institute’s Massachusetts IRS Data Discovery website. Over 71 percent of the loss was to Florida and New Hampshire, both no income tax states.