A Handy Guide to Moving From A High Tax State to A Low Tax State
Sometimes You Have To Get Out
Over the last several years, my wife and I have tried different places around the country on for size. We are born and bred Chicagoans. Our entire lives revolved around Chicago. But, Chicago is very different now and we knew we had to get out.
How’d it start?
We’d be walking through the park and we would talk to people who were leaving. Most of them were consultant types. All they needed was a good airport. I remember one younger person telling me, “I can sell my condo here and buy a huge house in Phoenix for the same price. Our baby can go to private school. Our property tax bill and monthly housing costs will drop by at least two-thirds. Plus, all other taxes are less.”
A lot of my trading buddies left Chicago once the floors closed. The only thing holding them to the city was their place of work. But, with a computer job, you can be anywhere.
I also saw some entrepreneurs leave. We had started Hyde Park Angels to try and stem the tide and it stopped for a bit. But, entrepreneurs were trickling out to places like Texas, and Colorado.
Of course, our age made a difference. We were in our fifties. Our kids were out of college or graduating from college and so were a lot of our friends. Many of them were getting out of the state.
For many of our friends, it was all about downsizing. They had this suburban or city house and it was empty. Once they sold it and got rid of a lot of stuff, they felt free to pursue something new. Some of them moved to the city. But, most of them left the state.
Where’d they go?
Florida mostly. There is a well-trodden path from Midwestern states to Florida. Both of our parent’s walked that path.
Some of our friends found that job opportunities in Chicago dried up, or they were able to do what they wanted somewhere else. Arizona, Ohio, Indiana, Tennessee, Colorado, the Carolinas, and Washington were places they went.
It wasn’t about the weather. If they were moving for weather, California is the choice.
We went to many larger parties or charity functions in the city and all the talk was about where people were going. It was becoming clear people were going to move out en masse. This started when Bruce Rauner was governor and Rahm Emanuel was mayor. Rauner couldn’t slay the Madigan dragon, and people decided they’d rather flee than fight. Fighting was like being Sisyphus anyway.
A good friend of mine had a home in a very tony suburb of Chicago. A neighbor had to sell their home. It sold for about 50% less than the home’s tax valuation. My friend went to the assessor and said, “Look, I don’t mind paying taxes and my fair share, but my neighbor’s home just sold for 50% off and you have mine on the tax roll at double where I could sell it. Is there something we could do?” The assessor just looked at him blankly and said, “No. The other sale was a forced sale due to divorce.”
He lives in Florida now.
If you live in a high tax state like Illinois, New Jersey, New York, Minnesota, Massachusetts, or California you probably have similar stories. The question is, how do you make a decision to pull the trigger?
In a little email group I am a part of, a buddy asked how I arrived at a decision. He has his own machinations running through his brain now and is trying to figure out how to structure a decision-making process.
I think that’s the hard thing. You see the tsunami coming. It’s as plain as the nose on your face. In the states I outlined above, it’s probably futile to fight except in the case of Minnesota which might be changing.
Covid has ripped the wallpaper off the walls and now we see governments, cities, and states for what they really are. They aren’t concerned with their constituents or making their lives better, cleaner, or safer. They are concerned about feathering the nest of government, their cronies, public unions, consolidating political power, and using the dollars of the little people to do it.
It’s not just taxes. It’s also fees. Fees to sell your house. Fees to get water. Fees for electricity. Parking fees. Ticket fees. Licensing fees. Fees to get bags for your groceries. There is a never-ending stream of ways these people think up to separate citizens from their money to enrich the beast they built.
As my friend observed, most people don’t mind paying some money for good government services. But what I also have observed is that the highest tax states also have the worst infrastructure and services.
As I said, everyone has identified the problem. What’s the answer?
First things first. You have to figure out what are the most important things in your life to you. That is a different answer for everyone, and different depending on where you are in your life.
For example, my wife and I looked at moving to Texas. Texas is a great state with decent weather in the late fall and winter, along with a nice spring. We summer at our place in far northern Minnesota so we were going to avoid hot summers no matter where we lived. But, while Texas has a lot of great things about their tax system, one tax that is hard to get around is property taxes. Since we are later in life and our largest income earning years are probably behind us, we didn’t want to be a slave to property taxes.
Here is an example of “first things first” that my wife and I took a while to discuss. It was a thoughtful discussion based on our experiences. We had to answer this question. Is family important to you? If you are older, do you want to be close to your kids?
My wife’s family all moved out of Chicago in the 1970s and 1980s. As my family got older, my sisters left and my parents left. Finally, cousins, aunts, and uncles left. I have a couple of cousins and a daughter left in Chicago. That daughter was supposed to be leaving Chicago when we made our decision to move but did not.
If the family is important to you, how do you want to integrate it into your life? Is a few trips a year by plane okay or do you want to live in the same neighborhood? A drive of an hour or two okay? Once you answer that, you can start to pin down whether it is realistic for you to move or not.
How are you, or do you need to make money where you are going? What’s that situation look like? I have always been an independent worker and my income has totally been based on my effort. I eat what I kill. Chicago was the best place for me until trading floors closed. I started angel investing and raised a microVC fund. However, looking back on it I probably would have been better off spending my efforts post-trading in another city at that time (2003-2010). It wouldn’t have meant moving, since my kids were in high school and I wouldn’t have moved them. But, it would have meant spending a lot of time traveling and living away from my family.
What is important to people is individual. But, you have to be totally and brutally honest with yourself about it. If you aren’t, you will lead yourself to a bad decision.
My wife and I wound up agreeing to a list of around 15 things that were important to us. It took a bit of conversation to get there. Sometimes it is actually defining those things in the right language that make a difference.
For example, in Chicago, we always lived close to the lake. We never went in the lake. We aren’t big swimmers. We never went to Navy Pier. We walked along the lake. So, what really was driving the decision to live close to the lake? For us, it was being closer to nature, and in general, neighborhoods that are next to the lake have higher property values with more to do and are safer than neighborhoods that aren’t close to the lake.
This is where it gets critical. You have to rank order those important things independently of each other. Be prepared to have an open and honest discussion with your significant other if there is one. If you are single, you just have to figure out a way to talk to yourself objectively.
The decision can’t only be about money. For example, if I wanted to totally minimize all the taxes I paid, Alaska would have been the choice. Money means different things to everyone and it means different things to you are different stages of your life.
I am in the back third of my life. I wasn’t moving for an income opportunity. Given my personality, skillset, and what I am equipped to do, the best place for me to move focusing only on an income opportunity might be Miami.
Once those things that are truly important to you are rank-ordered, you can start your search. You will easily eliminate places based on your preferences. Elimination and constraint are key because the world looks like your oyster in the beginning. You can go anywhere. By the way, staying put might also be on the table.
Once you start to find places to go, go there. Physically take the time and expend the money to travel there. It takes resources to get resources. Don’t be afraid.
If you have a pet, and I am assuming cat or dog, figure out a way to take them. When you live there, you will have the pet. We took our dog Archie and found dog parks in cities where we thought about living. Turns out, you can talk to people in dog parks and find out a lot about what you need to know. You will find out what the norms of that city are regarding pets.
We always rented a VRBO or AirBnb in a neighborhood we were considering. Don’t do it for a weekend, do it for a couple of weeks. For example, in Nashville we rented in Twelve South. We received a good flavor of what it would be like to live there. When we were in Jacksonville, we rented as close as we could to Ponte Vedra Beach where we were thinking about moving. In Austin, we rented in Tarrytown.
When you narrow down places to go, find a good realtor. We worked with realtors in places we wanted to go and combed real estate websites constantly. This is especially important now because there is so much demand. Be honest with that realtor about what you want in a new place and what you can afford. Then, work to get it.
For us, this was a process that took a few years. We knew we were probably making the move, so we wanted to prepare for it. Staying put was always an option for us too.
Formulate a plan for how you are going to try and integrate once you move. For us, we were older and didn’t have kids in school. How were we going to make friends? We decided to buy in a more established neighborhood rather than new construction. We also joined a country club and decided to actively look for a church to join. The country club has been a good way to make friends. I got hooked up with two different groups that have regular tee times so I get out and it is social. Church and Covid haven’t gone as well but we will figure that out when we get back.
For you, it might be joining a club, taking a class, going to a meet-up, or something like that. There are hundreds of ways to try and integrate yourself so you meet people you want to hang around with.
At the end of the day, we wound up in Las Vegas. It wasn’t on our radar screen at the beginning of our search. We also looked at Vegas during Covid, and moved during Covid and I am sure that influenced how we looked at things.
Third and second place for us would have been Austin or Dallas, south Florida or Arizona.
The trickle that was leaving high tax states has become a river. Nowhere in the country is untouched by it.
Some people asked me what the things were to make a decision. I won’t list them in rank order or elaborate on why, but seeing them may help you. My wife might leave a comment in the comments.
Great airport. Didn’t want to have to fly to a city to fly to a city.
Access to really cool ethnic grocery stores and ingredients.
Good restaurants; I am a foodie so it can’t be just average
No snow, I don’t ski otherwise Salt Lake would have been on the table. Wyoming might have been too.
No taxes or very low taxes
Close to kids or easy access to kids (we have one in LA, one was moving to SF)
Diversity in age when it came to local population
Access to healthcare
Great cell and internet
Stuff to do (shows, concerts etc)
Single story house
Traffic that you didn’t sit in
Pro or great college sports
Good golf course and country club
a place where friends and family would want to visit
Moving isn’t the end of the world. You can always move again if you think you made a mistake or life changes. I had a friend move away, then move back, then move away again in the space of about three years.