State Tax Competition

About State Tax Competition

US states compete for businesses and residents through tax policy. States without income tax, like Texas, Florida, and Nevada, attract residents from high tax states. States also compete for corporate investment through tax incentives. Amazon received over 3 billion in incentives for its HQ2 in Northern Virginia. States offer film tax credits, enterprise zones, and tax increment financing. Critics argue that tax incentives create a race to the bottom, with states giving up revenue to attract businesses that would have invested anyway. The SALT deduction cap increased the cost of living in high tax states, accelerating migration to low tax states. The pandemic remote work trend intensified tax competition, as workers became less tied to specific locations. State tax competition raises questions about federalism and the appropriate role of state tax policy.