States like New Jersey and New York have increased taxes on the wealthy to balance their budgets. This, according to analysts, could harm them in the long run.
“This for a relatively small revenue hole has the potential to become a self-fulfilling prophecy. If you’re worried about the revenue losses because people aren’t coming back, then probably the worst thing you can do is impose very taxes that would make them not come back,” Tax Foundation vice president of state projects Jared Walczak said.
Conservatives have long warned of wealthy individuals leaving high tax states for low taxes. But sociologist Cristobal Young said wealthy individuals are neither as concerned with taxes nor as mobile as policymakers often think.
Wealthy people travel a lot, but they’re tied socially and financially to where they live. They are also more likely to avoid taxes by hiring creative consultants that moving, Young told CNBC.
That could change post-pandemic, however, as many wealthy individuals are no longer bound to their offices or their children’s schools as they once were. CNBC wealth reporter Robert Frank said these decisions are even easier for wealth management firms who have smaller headcounts, many of which are hedge funds.
Moving data from 2020 indicates a smaller urban exodus than initially projected. Except for March and April, moves closely mimic 2019. The Bay area and San Francisco saw a prominent exit but even then, nearly 80% of the moves were within the state. This indicates that few, if any, left due to high taxes. Still, this data precedes tax increases taking effect.
“The problem with experiments when it comes to outmigration of the one percent who pay 40% of the taxes in New York State and California is that if you discover at some point the experiment failed, then it’s too late,” Frank said.