Search This Blog

Tuesday, June 6, 2023

New York and California are Losing Affluent Taxpayers

 Justin Fox at Bloomberg:

New York has been losing people to other states for a while. But something new happened during the pandemioc: The people who left had higher incomes than those who stayed behind — much higher.

The 2020-21 numbers here were released in late April by the Internal Revenue Service. They sort taxpayers by whether and where they moved between filing their taxes in 2020 and filing them in 2021; the adjusted gross incomes are for the 2020 tax year. It has been two years since May 17, 2021 — that year’s belated income tax filing deadline — and a lot has changed. But New York has continued to lose population, and if the trend depicted above were to continue, even in less extreme form, it would be disastrous for the finances of a state that relies on income taxes paid by those making $200,000 or more a year for almost half its revenue. (That is, before the pandemic in 2019, personal income taxes accounted for 65% of state revenue, and those making $200,000 or more paid 71% of the income taxes.)


The role of taxes in driving interstate migration is often exaggerated, but it’s not nothing. In a couple of recent papers, Joshua Rauh of the Stanford Graduate School of Business has shown that the percentage of very-high-income taxpayers leaving California jumped in the wake of one, a 2013 increase in the state’s top income tax rate, two, the 2017 Tax Cuts and Job Act’s curtailing of state and local tax deductions and three, the pandemic. Still, that’s not many people and for years those leaving California and New York have been mainly lower— and middle-income residents for whom expensive housing and other cost-of-living issues probably played a bigger role than tax rates per se.

In New York, the initial pandemic exodus was led by those who could afford to leave quickly and could work remotely. The composition seems to have shifted since then, with affluent Manhattan gaining population from mid-2021 to mid-2022, according to Census Bureau estimates, and the state’s poorest county, the Bronx, losing the biggest percentage of population. (The recent New York Times analysis showing an accelerating exodus of college graduates from the New York City metro area relies on different Census numbers that aren’t available yet for 2022.) New York has been finding all sorts of different ways to drive away all sorts of different people — and it looks as if that’s about to start seriously hampering the state’s ability to pay its bills.