Leaving New York for Florida, where the cost of living is exorbitant, means getting back about two months of net salary.Inearly June 2022, the Wall Street Journal published an interesting article on a new phenomenon called “The Great Pandemic Wealth Migration”. During Covid-19, wealthy Americans from New York and California fled to sunnier, more tax-friendly climes.
The explanation lies in the changes in the way to work that the Covid-19 pandemic induced. Covid allowed Americans to work remotely, and many wondered why they would stay in high-tax states like California and New York.
Rumor has it that taxation in the U.S. is soft: this is not the case with income tax, the main source of government levies. The top federal marginal rate of 37%, above $523,000 of income, is misleading. In New York, you have to add the state tax (10.9% maximum), the city tax (3.876% marginal rate), and the tax to fund Social Security, the pay-as-you-go pension plan, at 6.2% (up to $147,000 of income).
In total, the marginal tax rate exceeds 53% in New York.
Thus, in New York, the median employee in the stock market sector who earns $440,000, according to the State Auditor’s Office, pays $186,000 in taxes, which is an effective rate of 42%, according to the Smartasset simulator.
If he moves to Florida, where there is no local income tax, the bill is reduced by about $45,000 and the overall tax rate drops to 32%. New York wage earners, not all of whom work on Wall Street, have a median income of $92,000, according to the U.S. Tax Foundation. The corresponding tax ($28,200) is over 30%. Moving to Florida means dropping that rate to 22% and reducing the tax bill to $20,300.
In short, leaving New York, where the cost of living is exorbitant, means getting back about two months of the net salary.
The case-by-case calculations are always more complicated, but the overall figures from the Internal Revenue Service, quoted by the Wall Street Journal, are edifying: in 2020, the latest figure available, New York lost $19.5 billion in taxable income, California $17.8 billion and Illinois $8.5 billion. The big winners are Florida with an additional $23.7 billion and Texas with an additional $6.3 billion. Like Florida, Texas also has no local income tax.
The state tax difference was less punishing until the reform passed under Donald Trump in 2017. Once, NewYorkers and Californians could deduct local taxes from their federal taxable income. That deduction was capped at $10,000 for a single person, as Republicans felt that residents of the least socially protective states should not indirectly fund the welfare state and the spending implemented by Democrats in the coastal states.
The population hemorrhage is impressive:
between July 2020 and July 2021, New York lost more than 300,000 people, San Francisco 55,000, Chicago 45,000, Los Angeles 40,000, and Philadelphia 25,000. The fastest-growing cities are in Texas, Florida, Nevada, and Arizona.
In the past, wealthy New Yorkers stayed in their megalopolis because of the lack of quality schools and universities for their children in Florida and because of the excellent hospitals. These hesitations seem to be a thing of the past.
According to the Stacker website, 67 American billionaires (out of approximately 730) reside in Texas, including a newcomer, Elon Musk, the richest man in the world, who left California. There are 78 in Florida, a state that is generally not the one where they made their fortune, like the financier Carl Icahn, who left New York before the pandemic.
The situation is not catastrophic for California, which has recorded an unprecedented budget surplus of $100 billion due to the excellent performance of the stock market, federal aid, and the maintenance of salaries during the pandemic, while New York City has managed to balance its finances.
But that was before the Wall Street crash, which could change the situation once again by forcing the cities that lost out in this great American fiscal migration to adapt to stop the demographic hemorrhage that is leading to significant losses of income.
https://ssaurel.medium.com/the-great-american-tax-migration-afad30be4ad5 ....
Short piece with a few interesting statistics on US states with no income tax like texas and florida being flooded with an influx of tax comparison shoppers.
The author goes so far as to claim that under optimum conditions residents can earn 2 additional months of salary by moving from a high taxation state, to a state with reduced taxation.
A high percentage of people I see on the internet appear to want 80% income taxes in the united states. They want high taxes. But apparently there are residents in the USA who prefer low taxes. Which is an interesting point to consider.
I wonder if these trends have real application to nations of the world. As prices rise, are people migrating from nations with high taxation to ones which levy lower taxes? I think the answer is yes. In which case the title: "The Great Tax Migration of the 2020s" could be an interesting theme to consider.
