For decades high tax states have been treating their wealthiest residents like a bank account, with money to be withdrawn whenever state legislators had a new pet project to fund. In the past, wealthy residents were tied down to places like New York, New Jersey, and Connecticut because of their proximity to centers of industry like Wall Street. Today though, the internet allows wealthy executives to operate their businesses from almost anywhere.
With this newfound freedom, many wealthy residents of high tax states have been fleeing for places like Florida, where they get to keep more of their money and enjoy better weather. The caps on state and local tax deductions created by the 2017 tax reform have added fuel to the fire burning under many residents of high tax states, who are now exposed even more to the high taxes of their jurisdiction. It’s no wonder they’re ready to leave.
Juliet Chung and Joseph De Avila report in The Wall Street Journal:
The SALT cap has widened the gap between Florida and other states with no income tax, such as Wyoming, and New York City, where residents can owe income taxes at rates that approach 13%. Previously, individuals would pay a top rate of 39.6% in federal income taxes, plus state and local income taxes, but those taxes were typically deductible for the highest earners. Now, the state and local rates come atop the highest federal rate of 37%.
Connecticut, with a struggling economy, and New York have been shedding residents. Connecticut’s population of 3.57 million in 2018 represents a decline of 22,000 since its last peak in 2013, according to Census figures. New York’s population dipped to 19.54 million in 2018, marking a drop of about 119,000 from its last peak in 2015. New Jersey’s population has been rising.
Those who have made the move to Florida in recent years cite reasons including anticipation of the 2017 tax law change; the high costs in New York compared with the greater purchasing power of a dollar in their adopted home; and warmer weather in Florida, where many of the transplants already owned vacation homes.
Whether or not you’re a millionaire, you should pay special attention to what your state is taking from you each year in taxes, fees, and regulations. Is your small business being crippled by your state’s rules? Is your retirement purchasing power weakened by high taxes? The wealthy are getting more for their money by moving to where it is treated best.
If you feel like your state is taking more from you than it’s giving, you might want to consider your alternatives, especially when it comes to choosing where to retire.
