New Yorkers, rich or otherwise, have been moving to Florida for decades, particularly as they got older. The tax savings from such moves were boosted in 2018, after the passage of a Republican reform that capped the state and local tax deduction at $10,000. The new law meant the wealthy could no longer lower their federal taxes by deducting millions of dollars in state and local levies—a change that made states without an income tax like Florida and Texas more appealing.
Some rich New Yorkers, like Icahn, did move to Florida in the aftermath, but the total number of rich taxpayers in New York held steady, and tax revenues kept rising.
“We’ve had high taxes and it hasn’t driven all the multi-millionaires out,” said George Sweeting, deputy director of the city's Independent Budget Office. The question is whether that may change, he said. “We don’t know what the limit is. At what point does it become more than people are willing to pay? Theoretically there is some point there.”
Hedge fund partners who move to Florida, but keep staff and operations in New York, will still owe some tax in the Empire state. And larger firms find it more difficult to disentangle themselves from the city, said Steven Winter, a partner at Grant Thornton.
One of Winter’s clients, a hedge fund principal, just moved himself to Florida, gave up the firm’s New York City office space, and shifted all his employees to remote work. It’s “easier to do when you have a workforce that’s only 15 to 20 people,” he said, while it’s “harder to do for 50 or greater” employees.
Icahn, the 85-year-old activist investor who moved from New York to Florida in 2019, named a new chief executive for his firm this month. He told the Wall Street Journal that his current CEO and chief financial officer were both leaving the company because neither planned to follow Icahn to the Miami area.
Taxes are an important part of the discussions for smaller firms. Take the example of a manager who makes $10 million per year. In New York City, they would have paid more than $1.1 million in state and local taxes last year, and more like $1.2 million this year after the tax hike. By moving to Florida, the manager avoids that charge every year, as well as about $400,000 annually that their firm owes to the city’s 4% unincorporated business tax.
The savings are even bigger for the most successful managers. In addition to hiking the top rate on single filers earning more than $1.1 million—from 8.82% to 9.65% — the state added two new brackets: income above $5 million will be taxed at 10.3% and $25 million at 10.9%. Adding these to the city’s top rate of 3.88%, rich New York City residents now face marginal rates of 13.5% to 14.8%, surpassing the 13.3% top rate in California, previously the U.S.’s highest.
In approving the tax hike, Cuomo said he “fully” expects the blow to be offset by a repeal of the cap on state and local tax, or SALT, deductions. “When SALT is repealed, the taxes will be going down,” he said.
President Joe Biden has not proposed ending the SALT cap, but a bipartisan group of lawmakers is pushing for repeal. Critics of the effort, including New York Representative Alexandria Ocasio-Cortez, have argued that an end to the SALT cap would be expensive—costing $88.7 billion per year, according to the Joint Committee on Taxation—and mainly benefit the rich.