A US citizen is taxed on global income regardless where they reside. So they can't take advantage of lower tax countries.
True, forgot about that aspect. But what about capital gains? How are your capital gains assessed if you lived abroad as they are not income?
I beleive it's all taxed. You pay local taxes and can take that as a credit against US taxes. In the end you pay the max of the two.
Many people do choose their state based on taxation. For example, a lot of people live here rather than NYC because of lower state income tax, no local tax, lower sales tax, no taxes on clothing, lower fuel tax, as well as getting more land for your money. But they have raised the sales tax in recent years, as well as the fuel tax, and the property taxes are high. When it comes time to move, state taxation will be a factor. I don't think I will go to Hong Kong or Singapore, but thanks for the heads up!
I think saying that "many people choose their state based on taxation" is a gross overstatement. I believe most people choose their state as function of job, family ties, personal preference and pay taxes out of necessity. I would feel hard pressed to find a single friend of mine who chooses countries or states based on taxation
I have close to a dozen people I know that moved to Florida from NY and 50% of the reason was state income tax. They all make $250K+/year and were able to relocate and not affect their business. I have also heard of retired people that don't want to move south, moved from NY to PA because they don't tax retirement income.
What's the percentage of people in the US who relocate for tax reasons? Like 0.1%? 0.5%?1% certainly not most people. That has been my point.
I agree it is not the only reason. When incomes hit $500K+ and you get warm weather+lower cost of living, that seems to be the push.