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 “When SALT is repealed, the taxes will be going down,” he said.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.
Hodgson Russ’s Noonan estimates the number of rich New Yorkers seeking to leave is about 20 times greater now than after the Republican tax bill that passed in late 2017. Taxpayers looking to move are also a more diverse group, he said, including parents with children and millennials.
There is little data available yet on how many people have, in fact, moved permanently out of New York. But under its progressive income tax regime, the loss of even a small number of high-earning taxpayers can have a noticeable impact.
Statewide, taxpayers earning $10 million or more paid 17% of income taxes in 2018, or $8.1 billion. In New York City, about 1,800 people earned at least $10 million in 2018, and they were responsible for 18.5% of the city’s income tax revenues, or about $2.1 billion.
But these sums are relatively small compared to the city’s and state’s massive budgets. Property taxes—the city’s largest source of revenue—grew steadily for decades until Covid-19 devastated real estate values. In the coming fiscal year, the Independent Budget Office expects property taxes to drop by 3.3%—the first decline since 1998.
Meanwhile, the relocation of some rich people from New York has barely dented income tax revenue. In January, the city projected income tax revenues will fall 6% in the 2021 fiscal year, to $12.7 billion, but then rebound by 6% to $13.5 billion, “a near return to pre-pandemic ERA levels.” Recent tax collections suggest those projections may be conservative, with the city income tax continuing to bring in $13.6 billion in the last 12 months as of February.
Even though Covid-19 threw more than 900,000 New Yorkers out of work last year, revenues held up as more highly paid workers kept their jobs and the stock market rebounded.
The city also got a “shot in the arm” from the Biden administration’s $1.9 trillion stimulus bill, finance commissioner Sherif Soliman said at a March 24 City Council hearing, also citing the city’s mass vaccination campaign as a reason to be upbeat about the future. “While we acknowledge that we face a tough road ahead, we are optimistic for a full recovery for the benefit of all New Yorkers,” he said.
This article was provided by Bloomberg News.