The top 1% of New York taxpayers pay 46% of state income taxes. Revenues vacillate with capital gainsâa problem that is compounded in New York because bonuses in the finance industry are often tied to trading revenue. Markets were especially volatile during the last quarter amid uncertainty about trade and interest rates.
The bigger problem seems to be geographic tax arbitrage. Mr. Cuomo notes in a PowerPoint presentation that âanecdotal evidence suggests that high income taxpayers are considering changing their residence and that financial industry firms are looking at real estate outside of New York.â ....
According to IRS data weâve examined, New York state lost $8.4 billion in income to other states in 2016 (the latest available data), up from $4.6 billion annually on average during the prior four years.
The main reason I'm posting this is to point out that I believe we're on the precipice of numerous municipal and state* bond defaults. Chicago and Illinois are the poster child for this phenomenon: local government simply pushed the envelope too far, promising too much to too many (pensions, welfare, etc.) and then trapped themselves in a vicious cycle of raising taxes and then losing their tax base.
New York is next. The company I work for owns a decent amount of property in West Palm Beach and the number of inquiries we've received from hedge funds and family offices over the last two years has been stunning. Paul Tudor Jones relocating his primary office to Palm Beach about five years ago was the first trickle. The activity we're seeing now is clearly not a "blip". There have been a lot of "stealth" job relocations in finance in the past few years to Tampa, Jacksonville, Atlanta, and Charlotte.
Without the financial industry I'm not sure how NYC will survive and it seems we've hit the tipping point where employees and employers have said "enough with the taxes" but it's not enough for the city or the state. I strongly suspect Amazon isn't joking about canceling it's NYC expansion in favor of having its entire HQ2 campus in Fairfax VA.
...and times are good right now.
I don't see things ending well for NY, IL, NYC, Chicago, or cities in a similar position of having to chase their tail because raising taxes costs them their tax base.
*legally, States cannot default. Yet.