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The Blue State Tax Exodus: Fleeing Businesses Cry – “Let My Profits Alone!”

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The Blue State Tax Exodus: Fleeing Businesses Cry – “Let My Profits Alone!”

Famous New York “expats” like David Tepper, Paul Tudor Jones and Eddie Lampert have started a “Blue State Tax Exodus” to Miami, FL, Austin, TX and other low-tax havens.  Bloomberg recently reported that ex-Morgan Stanley dealmakers Sadek Wahba and Adil Rahmathulla are moving their $12 bn private equity firm to Miami.  Bloomberg also recently reported that ex-Blackstone dealmakers Stonepeak Infrastructure Partners (run by Mike Dorrell and Trent Vichie) are moving their $15 bn firm to Austin, Texas to get away from high New York taxes.  Austin, Texas with a huge tech presence and a swath of local colleges is sometimes nicknamed Silicon Hills.  Tech-giants like Apple, Amazon, and Google all have a presence in Austin, Texas due to, among other things, the lack of any state tax bill.

In a recent WalletHub study, New York has the highest tax burden in the Country with state taxes claiming a combined 13% of a taxpayer’s total income.  https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494/  New Jersey, Connecticut, Vermont and California also figure prominently in the top-10 tax burdened states.  In Fiscal Year 2016, the New York tax haul added up to $180 bn in state and local taxes, which amounted to $9,081 for every man, woman and child!

The Sunshine State has lured more than 70 financial service firms away from the Northeast in the past seven years including SkyBridge Capital and Universa Investments, according to Palm Beach County Business Development Board President Kelly Smallridge.  In recent years, New York lost 1.3 million citizens and NJ has lost over half a million, as tax rates have risen and made living in these high-tax states unaffordable for almost everyone.  Meanwhile, droves of citizens have migrated to Florida, Texas, the Carolinas, and Washington.  And other states like Tennessee have passed proposals to cut out state taxes to make their cities a more attractive option for established businesses looking to relocate.  The lack of a state income tax in Florida and Texas makes them particularly compelling choices.

The average New York state SALT tax bill is about $60,000.  Under the Tax Cuts & Jobs Act, with a $10,000 cap on state & local taxes, New Yorkers are facing a huge hit to their wallets if they remain in New York.

In both New York and California, estimates are that the top 1% of earners pay more than 50% of all state and local taxes.  And with little chance that these individuals will stay if they cannot at least get credit for those taxes against their federal tax bill, both states are literally facing potential bankruptcy.  Should a large number of these taxpayers decide to relocate at the same time, these states will be left with their revenues literally cut in half, while state budget requirements are at an all-time high.

Florida welcomes the influx of high earners seeking tax shelter.

Some of New York’s burdensome taxes:

  • 4.5% - New York City Sales Tax
  • 3.876% - New York City Individual Income Tax on highest earners
  • 8.85% - New York City Income Tax
  • 4% - New York City Unincorporated Business Tax (“UBT”)

Proponents of the new tax bill and of higher state taxes point out that empirical data calls into question whether wealthier taxpayers really are prone to move based on rising taxes.  Study-after-study concludes that most millionaires won’t move based on unfavorable tax changes.  But, all millionaires are not created equal and these studies fail to look at which millionaires are likely to hit the road.  It seems plausible that the biggest taxpayers… i.e., the David Tepper’s of the world, are the one’s likely to move from high-tax jurisdictions, such that the impact on state tax revenues is indeed a major cause for concern.

















Category: Tax

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