Tax Rates Impossible to Ignore as New Yorkers Migrate South
As the New York Times recently reported, New York City saw record levels of residents moving out of the city during the first year of the COVID-19 pandemic. According to the Times, city residents who left before filing their 2019 tax returns reported a total $21 billion in earnings.
Indeed, the first year of the pandemic was notable for the uptick in people and wealth leaving New York City; The New York Times analysis found that the average income of residents leaving in 2020 was 24% higher than in 2019. As the Times put it, this amounts to “the biggest one-year income increase among people who left the city for other states in at least a decade.”
This exodus of wealth may yet prove to be a problem for the financial health of the nation’s most populous and most expensive city. The top 1% of earners in New York, who make over $804,000 per year, pay 41% of New York City’s income taxes. As high earners flee, the city will lose tax revenues that support essential public services.
Flights like these prompted some states to litigate their right to tax remote workers employed by businesses in their state. Just last year, the Supreme Court declined to allow New Hampshire to sue Massachusetts over this issue. This has allowed Massachusetts to levy income taxes on New Hampshire residents who switched to working remotely for their employers based in Massachusetts.
In the ALEC-Laffer Annual Report Rich States, Poor States, New York consistently has the worst economic outlook rank among the 50 states. This is, in no small part, due to the high tax burden levied by the state. Taking into account state and local taxes, New Yorkers face the highest income tax burdens in the country, with a top marginal rate of nearly 15%.
More than ever, the pandemic enabled Americans to vote with their feet and choose where they want to live and work. Unsurprisingly, the latest national migration data show that Americans are fleeing high tax states like New York and California for low tax states like The Carolinas, Florida, Idaho, Tennessee, Texas, and Utah. New York alone lost about 300,000 residents in the first two months of the pandemic alone. Florida is the top destination for outgoing New Yorkers, with nearly 21,000 former Empire state residents relocating there in 2020.
The New York Times attributes these migration trends to New York City’s lockdowns and restrictions during the COVID-19 pandemic. While those restrictions are an important part of the story, there must also be an explanation for why New York has been losing residents since 2016 and why so many are moving to Florida. Here, the economic differences between New York and Florida come into focus; Florida was ranked as having the second-best economic outlook in 2021 and has been in the top 10 states since 2016. It also has no personal income tax, which is a likely factor in the uptick in wealth relocating there from New York City.
In recognition of Florida’s positive outlook and the decline of business hubs in high-tax cities and states, firms from Silicon Valley, Chicago, and New York have increasingly elected to relocate to the Sunshine State as well as Arizona, North Carolina, Tennessee and Texas. Lee Schalk, ALEC Vice President of Policy, recently noted that “You won’t see companies moving to states like New York, California, and New Jersey. They’ll be moving out of those states into neighboring states, where the policies are a little bit better, or they’ll be making the big move to places like Texas, Florida, North Carolina.”
In the wake of the pandemic, many workers are now able to choose where they live without even changing jobs. No doubt, taxes will play an ever-increasing role in those decisions. State leaders ought to consider these dynamics carefully and turn their tax regimes into an asset to promote future growth.
To see how changes to your state’s tax and fiscal policies would impact its economic outlook, check out the “Adjust Policies” tool at RichStatesPoorStates.org.