The Republican Tax Bill Could Turn Texas Blue
Every major policy overhaul has unanticipated consequences, and the Tax Cuts and Jobs Act will be no exception. One tantalizing possibility for this one: The Republican tax overhaul helps Democrats in the midterm and 2020 elections by bringing forward the date at which a few critical states — Georgia and possibly even Texas — flip from red to blue.
How might this happen? It stems from the new caps on the home mortgage interest and state and local tax deductions. Restrictions on building have pushed up the costs of housing in expensive coastal blue-state cities like San Francisco, Los Angeles and New York City. High income and property taxes piled onto exorbitant rents and mortgage payments amount to cost-of-living force fields that already deflect talented workers to relatively affordable red-state cities, like Phoenix, Houston, Atlanta and Charlotte, N.C.
The tax act’s ceiling on deductions is likely to make many blue-state metro areas even more expensive — at least in the short run.
With the Republican changes to the tax code, the high-cost dynamic that has effectively redistributed some probable Democratic voters from left-leaning to right-leaning states will be thrown into overdrive.
Furthermore, the lowered corporate tax rate is also more likely to spur capital investment, business expansion and job growth in places that are both economically thriving and comparatively cheap — many of them urban areas in red states — which should bring a relative abundance of attractive new opportunities and cost-conscious job seekers.
It’s only mildly surprising that Republican tax reform would stick it to Democratic states and goose the growth of powerful Republican states. But it might come as a shock that this could speed us toward the date when these states are no longer reliably Republican.
Approximately 1.5 percent of the American population relocates across state lines each year. Younger, well-educated Americans make up a disproportionate part of those moving.
Between 2010 and 2012, according to the Census Bureau, adults aged 18 to 34 made up less than a quarter of the population, but more than 43 percent of all movers and more than half of voting-age movers. Americans in their mid-20s are roughly three times as likely to move as those in their mid-50s. Moreover, within the younger, high-mobility cohort, those with some college education are most likely of all to pull up stakes. This lends the resettling set a Democratic skew.
Millennials are projected to make up a larger share of eligible voters than baby boomers this year. In a Pew Research Center survey conducted before the 2016 election, 57 percent of those between the ages 18 and 35 favored Democrats. And the Democratic edge among younger voters appears to be widening. To make matters worse for Republicans, millennials have been leaving the Republican Party in droves. A recent Harvard Institute of Politics poll found that a measly 22 percent of under-30s were willing to identify as Republican.
The relatively high level of education among movers tilts the balance even further to Democrats. Voters of all ages with four-year and postgraduate degrees favored Hillary Clinton over Donald Trump by a nine-point margin. For college graduates under 30 — the most itinerant group — the difference was a fat 15 percentage points.
So red states with high rates of domestic in-migration such as Arizona, Texas, Georgia, North Carolina and Florida are very likely adding Democrats faster than Republicans — even when taking into account flows of retirees seeking warm Southern weather.
This wouldn’t constitute an urgent problem for Republicans if Mr. Trump’s divisive ethno-nationalist identity politics wasn’t already intensifying nonwhite voters’ disdain for the party. Exit polls in November’s Virginia governor’s race vividly illustrate the party’s perilous electoral position. Ed Gillespie, an establishment Republican, won 57 percent of the white vote with a race-baiting Trumpist campaign, but an abysmal 19 percent of the nonwhite vote.
Texas is already a majority-minority state, and its voting-age population will follow suit next year. Arizona is set to flip to majority-minority status in 2023, and Georgia and Florida are set to follow in 2025 and 2028. A more inclusive Republican Party could hold these states indefinitely, but the Trump party’s pivot to white identity populism has used up its slack.
In that context, the effects of the tax changes on relocation choices could make a difference sooner rather than later. Make no mistake, state fiscal and regulatory policy really does matter.
Residents in the states with the highest net in-migration rates bear a relatively low tax burden. Economists have only begun to study the effects of tax rates on particular subgroups of movers, but recent results are suggestive. In a 2017 paper published in the American Economic Review, the economists Enrico Moretti of the University of California, Berkeley, and Daniel J. Wilson of the Federal Reserve Bank of San Francisco looked at addresses on patent filings to track the movements of top scientists and found that “state taxes have significant effect on the geographical location of star scientists and possibly other highly skilled workers.”
The effects of housing costs are clearer and larger. Andrii Parkhomenko, an economist at the University of Southern California, has estimated that the populations of high-productivity, high-wage Los Angeles, and New York might have been, respectively, 40 percent and 60 percent larger than they are today had their land-use policies allowed supply to better keep pace with demand, thus curbing housing costs.
This type of estimate is sensitive to assumptions about how big a wage bump is required for workers to move away from family and friends, but even conservative assumptions lead to the conclusion that many millions of Americans would have moved to the country’s biggest, most productive cities but ended up somewhere else because of high housing costs.
Incentives matter. The dynamic that gave Texas a net gain of nearly a million domestic migrants since 2010 isn’t about to go away. It’s about to get stronger.
The demographic trends posing an imminent hurdle to Republicans in states like Texas and Georgia are, ironically, partly a consequence of the party’s own light-touch fiscal and regulatory policy.
But the Republican Party has already boxed itself in by embracing Mr. Trump’s bigoted populism. Now, with the Tax Cuts and Jobs Act, the party is painting itself into the corner of the box.
Republicans can’t stop the midterm Democratic wave, but they can blunt its force by hastening to adjust to the state-level demographic realities their economic policy helped create. Republicans desperately wanted tax cuts. Now that they got them, they desperately need to back away from Trumpian chauvinism and win a little good will from black, Hispanic and Asian voters.