Remote Workers Care About Income Taxes, Not Property Taxes
What happens when workers are given the opportunity to work remotely? New research suggests that income tax rates affect location decisions, but that property taxes don’t have the same effect. That’s a finding with important implications for the ongoing debate about property tax elimination.
SALT News and Updates
New Jersey Senate President Nicholas Scutari (D) has introduced data tax legislation in the waning days of the 2024-2025 legislative session. The bill would have to be acted upon before the session ends on January 13th, but its sponsorship by the Senate president suggests the possibility of fast-tracking. Notably, the tax features a series of cliffs, the largest of which imposes an additional $950,000 in tax liability for collecting data on one additional user/consumer, and it could easily count each person multiple times for tax purposes. For more on this, see my Tax Foundation blog post.
Minnesota’s Department of Revenue is reminding taxpayers that the state’s pass-through entity tax (PTET) will expire at the end of the year, as it was keyed to the status of IRC § 164(b)(6)(B) and does not take into account the continuation of the SALT cap, albeit at a higher level before the phaseout threshold. Notably, 60% of all pass-through income in Minnesota is reported on returns subject to the phaseout. And Minnesota is not alone in having a PTET set to expire at year’s end—a topic to which I’ll return in the near future.
Despite further urging from Gov. Josh Stein (D), North Carolina appears set to enter 2026 without a budget for the biennium that began in July, as House and Senate Republicans remain apart on whether and to what degree to continue income tax rate reductions.
Worth Reading
A Substack post arguing that $140,000 is the true poverty line for a family of four predictably set the internet ablaze last week. Scott Winship and Jeremy Horpedahl have responses that are worth your time, even if you don’t need a couple of essays to know that $140,000 is not the poverty line.
A new paper finds that the 5-year amortization of the research and experimentation deduction led to a significant reduction in R&D jobs.
New Paper on Remote Workers’ Responses to Income and Property Tax Burdens
A recent working paper by Richard De Thorpe sheds new light on the factors driving relocation decisions for employees newly eligible for remote work, showing that remote workers select for lower income taxes but not for lower property taxes. This result is unsurprising but is significant for policy choices around income and property tax burdens.
Using office lease expirations to provide quasi-random variation, De Thorpe finds that remote work accounts for 21% of migration since 2020 and that remote work raises 1-year migration rates by 23 percentage points. The use of office lease expirations in the instrument helps address endogeneity concerns, since otherwise it would be difficult to determine when migration is an outcome of remote work and when remote work is a consequence of remote work.
Notably, remote work reduces the probability of living in income-taxing states by 2.4 percentage points, and of living in income-taxing cities by 5.5 percentage points, but it increases property tax payments by an average of $7,319—a significant increase.
Unfortunately, the paper’s income tax analysis is limited to jurisdictions that tax income vs. those that do not. It thus fails to capture moves that reduce, but do not eliminate, income tax burdens. A 2.4 percentage point increase in the odds of living in Florida, Texas, Tennessee, and a few other states (realistically, most of the migration would be to these states) is quite sizable. How much larger would the result be if the paper also examined moves from high- to low-income tax states?
Most people already live in jurisdictions without local income taxes, so a 5.5 percentage point increase in that likelihood under conditions of remote work is even more significant. On the one hand, it’s often far easier to move across cities or counties than across states. On the other hand, an increase of that magnitude is made more significant by the comparably low initial share of now-remote workers originally in local income-taxing jurisdictions.
While newly remote workers relocated to no-income (and presumably lower-) income tax states, they actually increased their property tax liability quite substantially in the process. Clearly, many people found this a reasonable tradeoff. De Thorpe offers a compelling interpretation: “Taken together with the results on income-tax migration, these patterns imply that remote work shifts tax capacity from broad-based income taxation toward property taxation, reflecting a lower willingness to pay for taxes with weak perceived benefit linkages and a higher willingness to pay for local taxes tied more directly to visible neighborhood services and amenities.”
Remote workers may be uniquely interested in local amenities and quality of life, since they spend more time in their neighborhood than commuting workers. However, they’re hardly the only people with a revealed preference for taxes that better scale with local benefits received. More generally, as incomes rise, demand for better public amenities associated with higher property taxes (but not with income taxes) may increase.
Homeowners complain about property taxes, which are highly visible. But time and again, the revealed preference of those with a choice about where to live is to sort into cities and states that lean more toward property taxes than income taxes. They may say they dislike property taxes. They may well mean it. But when they evaluate the system as a whole, they keep moving to states with relatively higher property taxes and lower income taxes.
I have a paper exploring the high cost of offsetting property taxes through higher individual income or sales taxes, both through local option taxation and higher statewide taxes. De Thorpe’s paper lends further support to the proposition that taxpayers won’t respond well to such a trade.
Obligatory Marketing Note
Property taxes will be front and center across the country in 2026. I have written extensively on the best ways to design and implement levy limits, the unintended consequences of assessment limits, and the consequences of eliminating property taxes. If you are interested in an analysis tailored to your state or in short-form content with state-specific estimates of income and/or sales tax replacement rates (statewide and local option), please let me know. My new consultancy provides tax policy research, writing, and other services.
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