Unemployment Debt, A New Driving Force Behind Coastal Cities Migration

Or we can save somewhere else, come back later, and buy it in foreclosure!

California, New York and Massachusetts should take nothing for granted.

There are many reasons why people are moving out of California, New York and Massachusetts. Putting aside the increasing levels of the homeless and Covid-19, some people will move to low-tax states in the coming years to avoid paying off debt their states accumulated to pay unemployment benefits they didn’t save for.

Let’s go through the table above. At the end of 2019, California had 17 million employed. It had also saved $3 billion saved for workers who might lose their job. On average, every worker in the state had contributed $188 to the state’s unemployment fund at the U.S. Treasury. They even earned 2.41% interest.

By mid October, 2020, California had borrowed $14 billion. If every worker were to get their job back next month, they’d each owe $813 just to get the fund out of debt. To get back to where they were would cost over a thousand. The debt is only getting worse.

But…

What if a worker moved South to Arizona? Then they wouldn’t have to pay anything into California’s fund and they wouldn’t have to pay much into Arizona’s! The same if they moved up North to Washington.

To-date, the states have borrowed $35 billion from the U.S. Treasury to pay their unemployment claims. That number will likely double by the end of 2021.

Extrapolate from this and you can imagine how all kinds of state and municipal debt will soon overwhelm some states.

There is nothing stopping anyone from leaving states with high debt burdens.

The Federal government will only pay off a limited amount.

If the Senate were to pay off all State unemployment fund debt, it would result in Arizona Federal tax-payers, who collected one quarter of what someone collected in Massachusetts, paying for some “other guys” high-debt in a different State.

Another factor is double taxation. Massachusetts taxes unemployment benefits at around 5%, California does not. So shouldn’t Massachusetts get less Federal money in the future?

It doesn’t matter who is President or who sits on the Supreme Court, when it comes to Federal State funding, the buck stops with the Senate.

One of the strengths of the US economy is that each state is effectively in competition with the other 49 states for new opportunities that will benefit their residents. The Federal government (even a democratic one) is unlikely to vote for a mass redistribution of wealth out of the frugal states to those that took on high levels of debt.

Is the pandemic a freak of nature that has harmed otherwise healthy State economies, or did it just exposes the weaknesses critics have talked about for years — too much debt and fiscal mismanagement? Net migration out of California, for example, began before the pandemic.

There are so many variables in play. Migration is impossible to predict. I have put some hard, real dollars behind why one shouldn’t be surprised if it grows in the years to come.

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