The moving experience of a lifetime


by Scott Burns

Source: Dallas Morning News

Pamela Villarreal looks up from her laptop. She checks that the correct Web page is projected on a large screen and nods OK.

I'm visiting with Villarreal, a senior fellow at the National Center for Policy Analysis in Dallas, to check out a new tool on its website - a free calculator that will estimate the lifetime value of moving from one state to another.

Yes, you read that right: the lifetime value. Not just whether you can afford a move today, but the long-term impact on how much more (or less) you'll be able to spend each year and leave to heirs.

I ask Villarreal to test the move people are making every day: from California to Texas. We use as our example a 40-year-old worker who's single and earns $70,000. Angela has $70,000 in retirement accounts and $70,000 in taxable savings. She rents in California at $1,500 a month and intends to rent in Texas at the same amount. Villarreal presses the "calculate" button.

The results appear in a flash. Angela will gain $1,615 a year in spendable income by moving to Texas. If she saves it, she adds $133,593 to her estate.

That's nice, but not exactly earth-shattering.

"What if she moves so she can become a homeowner?" I ask. Villarreal has Angela take $40,000 from her taxable savings for the down payment on a $200,000 condo. It has a $160,000 mortgage with an $810 monthly payment. She presses calculate again.

We gasp. "Maybe we should call her Lady Gaga!" Villarreal says.

Moving to Texas to become a homeowner will add $12,692 a year in spendable cash. It will do this every year for the rest of Angela's life. If she saves the additional spending power and maintains her current spending level, the move will increase her estate by $1,049,571, all in dollars of today's purchasing power.

The big benefit doesn't come from escaping the California income tax. Virtually all of the benefit comes from moving from a state where many middle-income people can't afford a home to a state where they can.

How long do you think it would take a $70,000-a-year worker to gain after-tax spending power of $12,692 a year in this economy?

I'd like to say it's simple, but it isn't. The engine behind this calculator isn't driven by the relative price of avocados and movie tickets. Its primary driver is tax differences. A single worker earning $70,000 a year gets hit with a tough income tax in California. The federal income tax rate is pretty tough, too.

When Angela moves to Texas, she sheds the California income tax. More important, she gets a pile of itemized deductions for homeownership that reduce her federal income tax. She also gets to build equity.

I ask Villarreal if she has found other moves that are as dramatic.

"Well," she says, "you can get figures in the millions pretty easily when you use high-income people as examples. It probably says a lot about why LeBron James went to low-tax Florida to join the Miami Heat instead of NBA teams in high-tax states like New York, Illinois or California."

The calculators on Bankrate.com and CNNMoney.com are based on data from the Council for Community and Economic Research.

The calculator behind the NCPA's tool is different. It's based on ESPlanner software, the same software that professor Laurence J. Kotlikoff and I used as the basis for our book, Spend 'Til the End. Using a sophisticated calculating engine, it calculates the lifetime discretionary income ramifications of decisions about location, shelter, savings and taxes.

The main difference between the NCPA tool and the full financial planning software is that the NCPA calculator makes assumptions to reduce the items you have to enter to get a result. The calculator is at whynotmove.org.

Scott Burns is a syndicated columnist and a principal of the Plano-based investment firm AssetBuilder Inc. Email questions to scott@scott burns.com.