Posted originally on Feb 13, 2025 by Martin Armstrong 

The two states that are attracting the most investment capital and migration from the notorious Blue States of California and New York are none other that the two states without income taxes – Texas for computers and Florida for finance.

Trump’s announcement of his intention to transform the US into “the world capital of artificial intelligence (AI)” and what is now being called Stargate is said to be the largest project of its kind “by far in history” with the joint venture between tech firms OpenAI, SoftBank, and Oracle. This is said to be investing $500 billion in AI infrastructure over the next four years of the Trump Administration. Big tech is migrating from California and its Silicon Valley is moving brick by brick to Texas. They say 10 data centers are already under construction in the state, 10 more are on the way, and the project’s first one-million-square-foot data center will be based in Abilene in western Texas.

The flight out of New York has been underway since, especially with the COVID-19 pandemic. That was the final nail in the coffin of NYC. Wall Street executives have been shifting operations and jobs to Florida, fleeing New York City. Well over 200 financial firms have left, and some of the biggest fund managers. The shift is now over $2 trillion, showing no sign of letting up. The peak for NYC actually came in 2016, which was right on target with the 224-year cycle of political change from the founding of the New York Stock Exchange, which traces its origins to the Buttonwood Agreement signed by 24 stockbrokers on May 17, 1792.

Moreover, tax exemption for municipal debt could be chopped with the Tax Cuts and Jobs Act (TCJA) of 2017 slated to expire at year-end 2025. Tax loopholes will be high on Republicans’ legislative agenda. However, an extension or expansion of TCJA’s provisions could grow the federal budget deficit sharply. Tax-exempt municipal bonds date back to the earliest federal income tax in 1913 and have been a pillar of state and local project funding ever since. It is not that they have managed the debt efficiently. According to the National League of Cities, municipal bonds are a $4 trillion market and have financed approximately 75% of US infrastructure—with hospitals, schools, airports, water and sewer systems, public power facilities, and toll roads among the many beneficiaries.

Detroit went bankrupt in February 1933, before U.S. municipal bankruptcy laws were enacted, the city defaulted on its $350 million in outstanding debt (equal to $6.4 billion today). Many of its suburbs joined in the insolvency. On the American side of the border, Dearborn, Farmington, Pontiac and Royal Oak all defaulted; on the Canadian side, Windsor, Ont. went bankrupt. In fact, in Canada, East Windsor, Sandwich and Walkerville all were in default by 1934. A 1935 act of the Ontario provincial legislature consolidated these cities and their debts into contemporary Windsor, and the debt was slowly repaid. The tax free status in the US was also to overcome the defaults and suspension of debts during the Great Depression in addition to widespread defaults of nations in 1931 onward.

As this migration continues from the Blue States to the tax-free Red States, we will see a rash of defaults at the muni and state levels post 2026.