The question of raising taxes is always a contentious issue, whether it’s talk about raising taxes across the board or just for the wealthy. With the COVID-19 pandemic affecting revenues not only for businesses, but also local government, New York legislators have renewed discussions about raising taxes for high earners.
In a state like New York where there is a high concentration of millionaires and billionaires, such proposals don’t exactly fly under the radar. Even Democratic Governor Andrew Cuomo has come out in opposition of a tax hike on the wealthy, citing concerns that it “would only cause them to flee to lower tax states.”
That’s something we’ve certainly heard before. The main argument in favor of not raising taxes on the wealthy has always been the fear that they will sell their homes and move to other states or even countries with lower taxes. That would be a big deal for New York if it actually happens. A recent article from CNBC found that, “the top 1% of earners pay 40% of New York’s income taxes and 47% of New York City’s income taxes.”
However, as we said above, the idea of the wealthy fleeing high-tax states for greener pastures is not a new one. That means there’s data and studies about what the wealthy actually do when confronted with higher taxes. The most prominent study is encapsulated in a book by Cristobal Young called The Myth of Millionaire Tax Flight. In a 2017 article for The Guardian, Young synthesized the central conclusions of his book which involved analyzing the tax returns of “3.7 million top-earning individuals” in the United States. His conclusion? “Only about 2.4% of US-based millionaires change their state of residence in a given year.” Moving from one state to another is actually more common for people who belong to the middle class and below. When millionaires do move, 85% of the time it has “no net tax impact for the movers.” Young also found that, of the 15% who make a move with a favorable tax impact, “almost all of the tax-migration moves are to just one low-tax state: Florida.”
In more recent reporting, The Atlantic published an article just last month on the topic of millionaire tax flight. They found that after the passing of the Tax Cuts and Jobs Act in 2017, which capped state and local tax deductions for high earners, the number of wealthy residents in New York City actually increased. Between 2016 and 2018, the number of people earning more than $5 million and paying taxes in New York City rose from 3,528 filers in 2016 to 4,412 in 2018.
Of course, all this data is pre-pandemic. The coronavirus has injected a level of uncertainty into pretty much every aspect of our daily lives. It’s unprecedented in many ways so we can’t entirely predict how wealthy New Yorkers would react now to an increase in taxes. However, on Long Island we have seen an increase in people relocating from the city since the pandemic begin. So much so that, as we reported earlier this summer, home sales increased year-over-year in almost every price bracket, including luxury real estate. What we haven’t seen as much of is people leaving New York entirely. With most people able to work remote for the foreseeable future, people (including the very wealthy) are still choosing to stay in New York state where income tax for high earners is set at 8.82%. Not the highest in the nation, but still substantial.
Our conclusion? Based on several independent studies and our own anecdotal evidence of recent Long Island real estate market trends, tax rates do not seem to be the biggest determining factor for where wealthy New Yorkers choose to live. The location independence granted by the COVID-19 pandemic has illustrated the truth of that. Even with the freedom to choose and the means to do so, most wealthy New Yorkers are not leaving the state. Instead, they’re choosing a little more space and a different pace of life for themselves and their families outside the city.
If you’re one of many people thinking of making a move this winter or in spring 2021, we would love to work with you. If you own a home currently that you might want to sell, click here to request a free estimate of your home’s current value. You can also view some of our recent sales to see how we’ve helped many people on Long Island take advantage of the strong seller’s marker. Thinking of buying? Start your search today by learning about Long Island’s best neighborhoods or browse all homes for sale.