This article was published by The McAlvany Intelligence Advisor on Wednesday, February 6, 2019:
One skill Governor Andrew Cuomo has perfected is that of projection: placing the blame for his troubles onto his enemy. He did that on Monday when explaining that his state’s revenue shortfall of $2.8 billion was due to Trump’s tax reform:
There is no doubt that the budget we put forward [$175 billion for fiscal year 2019-20] is not supported by the revenues. It’s as serious as a heart attack….
SALT [which capped deductions for state income and local property taxes for the wealthy in Trump’s tax reform act] was an economic civil war. It literally restructured the economy to help red [Republican] states at the cost of blue [Democrat] states.
That’s exactly what it did. It was a diabolical, political maneuver.
Naturally New York State’s onerous taxes had nothing to do with it. Cuomo even said that what he did in extending the temporary “millionaires’ tax” following the financial crisis a decade ago was “the right thing” to do.
In other words Cuomoattacked the very people he needed the most to pay for his spending bill: the top 1 percent of New York’s taxpayers who account for almost half of the state’s tax revenues.
Cuomo complained that since the exodus doesn’t “support” his budget he is going to have to cut it somewhere, and has until February 15 to come up with a new and smaller plan.
Outmigration of the wealthy from the Empire State has been going on for years and the SALT limitation was, for many, just the final straw. It has even spawned a new industry: advisors helping the wealthy escape to warmer and friendlier tax climes, like Miami, Phoenix, and Las Vegas.
In December, Edmund McMahon, research director of the Empire State Center for Public Policy, put the numbers on that outmigration: “During the 12 months ending July 2018, 180,306 more residents moved out of New York State than moved in from the rest of the country…. New York was one of only nine states to experience a population decline during this period.” And since 2010 he estimates the emigration from New York at 1.2 million people.
And a lot of them are headed for Florida. According to Census data released in December, Florida had the highest level of net domestic migration from July 2017 to July 2018, while New York during that same period was the largest overall population loser.
It’s not hard to discern why: according to the Tax Foundation, Florida is ranked 4th on its list of the ten best states from a tax perspective while New York is ranked 48th. This ranking comes from analyzing corporate taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. Florida ranks near the top in nearly all categories, while New York ranks near the bottom.
Even Cuomo admitted that it is tough to compete with Florida’s climate, both weather and fiscal: “A taxpayer in Florida would see no increase [in taxes], probably would see a decrease, and Florida also has the advantage of no estate tax.”
New York is just one of several northeastern states that are shrinking as residents head for warmer and friendlier environs. New Jersey ranks dead last on the Tax Foundation’s list, and explains why:
The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates.
New Jersey, for example, is hampered by some of the highest property tax burdens in the country, recently implemented the second highest-rate corporate income tax in the country, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.
This out-migration from high-tax states has been going on for years, long before Trump’s tax reform. But with the SALT deductions capped, it is likely to continue and even accelerate. Since 2007, Texas and Florida (neither of which have a state income tax) have gained 1.4 million and 850,000 residents, respectively, from other states. California and New York have jointly lost more than 2.2 million residents. Arthur Laffer and Stephen Moore estimated that about 3.5 million Americans, on net, have relocated from the highest-tax states to the lowest-tax states, with another 800,000 or more likely to move in the next three years.
The real reason the wealthy are increasingly moving to places like Miami, Phoenix, and Las Vegas is because they can. They are, by and large, highly flexible and mobile, and many are driven by Rule Number One for getting and staying rich: cut your expenses. The fact that the weather might be nicer there is just a bonus (and tax-free at that).
Cuomo’s clumsy attempt at projecting his failures onto his enemy failed. He and his fellow Democrats in Albany have been treating the state’s wealthy residents as cows they can milk forever. The SALT limits in Trump’s tax reform law are just the final straw, and those milk cows are increasingly leaving the barn.
The Wall Street Journal: Out-of-State Buyers Flock to Miami
FoxBusiness.com: More Americans fleeing high-tax states
NewsMax.com: Big Earners From High-Tax States Flock to Florida
The Wall Street Journal: N.Y., NJ Governors Blame Shrinking Revenue on Federal Tax Changes
The Tax Foundation: 2019 State Business Tax Climate Index
The Tax Foundation: 2019 State Business Tax Climate Index (pdf)
EmpireCenter.org: New Yorkers Keep Heading for Exits