High taxes aren’t causing rich New Yorkers to flee, study says

A new report suggests that the much-publicized flight of rich New Yorkers to other states at the height of the pandemic was a short-lived phenomenon, and it likely wasn’t caused by the state’s high income taxes. In fact, there are 15,000 more millionaires living in New York now than there were at the start of 2020.

The report from the left-leaning Fiscal Policy Institute, based on Census data and state tax information, comes amid a heated debate over tax rates and where rich people choose to live. Those arguments have intensified since COVID-19 disrupted local economies and made it more practical for people with big salaries or investment income to work remotely and, potentially, pay less income taxes while doing so.

The question has been at the center of policy disputes in Albany, like many other state capitals, after several billionaires including Carl Icahn and Josh Harris left New York for Florida. Last spring, Democratic legislators in New York pushed to increase taxes on high-income earners, but Gov. Kathy Hochul, also a Democrat, insisted on keeping them at their current levels.

Nathan Gusdorf, the executive director of the Fiscal Policy Institute, said the group’s analysis could help lawmakers understand the impact their budget decisions would have on the state’s finances and on everyday New Yorkers in upcoming negotiations.

Many leaders want raising taxes to be “off the table” next legislative session, he noted, even as the state’s budget picture is improving. But policies that could help middle-class New Yorkers—including expanding child care and prekindergarten, bolstering higher education, building more affordable housing and broadening tenant protections—require new revenue. “We hope this report shows the state really does have room to pursue those important policies,” he said.

The report, called “Who Is Leaving New York State,” found that the outflow of rich New Yorkers from the pandemic in 2020 and 2021 largely subsided during 2022. Those who did leave during that time often were taking advantage of work-from-home arrangements, which were more commonly available for higher-income workers. 

“People were really fleeing the pandemic, as opposed to a longer-term social trend for the state,” Gusdorf said.

What’s more, the number of millionaires living in New York increased since the pandemic, the report found. The state lost 2,400 people making more than seven figures since 2020, but it has gained 17,500 more in the same time. A strong economy, higher wages and a rise in capital gains helped increase that number.

There was a net gain for state coffers, too, as the income tax base grew in both 2020 and 2021, according to the report.  

New York’s tax burden for top earners has been high for decades, but the report found that the top 1% of earners typically moved out of the state less frequently than of any other income group. Only two out of every 1,000 top earners left New York in non-COVID years. That rate is a quarter of the rest of the population.

Emily Eisner, an economist at the institute, and Andrew Perry, a senior policy analyst, argued in the report that other evidence suggested the very wealthy did not move based on tax rates.

First, the top earners who did leave the state usually departed for other high-tax states. Three out of every four who left went to either New Jersey, Connecticut or California. (Despite the headline-grabbing moves of prominent billionaires, Florida was a more popular destination for middle-class New Yorkers than for millionaires.)

Second, high-income residents did not leave the state in any significantly higher levels after two changes in recent years that would have increased their tax burden. The first came in 2017 when President Donald Trump and congressional Republicans approved a tax package that effectively increased state and local taxes for people in high-tax jurisdictions like New York. The second came in 2021 when state lawmakers increased tax rates on people making more than $1 million.

“There was no behavioral response among high earners that indicated migration out of the state,” the authors wrote. “When high earners do move, they are more likely to move to another high tax state than to a low tax state, indicating that taxes are relatively low on the list of motivating factors in high earners’ moving decisions.”

Gusdorf said he hoped that the new study would counter conventional wisdom, particularly among conservative media and pundits, that higher tax rates would chase away high-income residents.

In New York, for example, critics have argued that the departure of high-earning residents could exacerbate the state’s budget problems, which could affect the state’s population at large.

“New York State is giving away the goose that laid the golden egg—its highest-earning taxpayers,” wrote John Ketcham, the director of state and local policy at the Manhattan Institute, a conservative think tank. “As monthly tax collections fall short and fiscal reality bites into these spending commitments, public leaders will be forced to confront (and correct) a hard reality: New York has become a less attractive place to live.”

Steven Malanga, the senior editor of the City Journal and a Manhattan Institute colleague of Ketcham, argued that a state’s tax policy often indicates what policymakers value.

“Taxes are an essential component in state migration, but not always in a straightforward way,” he wrote. “Taxes don’t exist in a vacuum; they are one component of a governing philosophy. High taxes represent an approach that favors bigger, more pervasive government, which takes many other forms besides taxes: a tendency to greater regulation and differing spending priorities than those of lower-taxed states, for example.”

On the other hand, Michael Mazerov, a senior fellow at the left-leaning Center on Budget and Policy Priorities, wrote in August that many of the migration patterns that conservatives chalked up to tax rates were actually just an extension of decades-long trends of people moving out of the Northeast and the Midwest to the Sun Belt and Western states.

“Policymakers in states like California, Connecticut, Illinois, Massachusetts, Minnesota and New York should ignore warnings by anti-government advocates that state taxes are causing massive ‘tax flight.’ Conversely, lawmakers in states like Iowa, Mississippi, Nebraska and West Virginia that have recently cut their income taxes should harbor no illusions that such a move will stem—let alone reverse—their states’ long-standing net out-migration trends,” he wrote.

Gusdorf acknowledged that the partisan divide over taxes and migration would make it “hard to disprove conventional wisdom, even when conventional wisdom is wrong.” But he hoped the new report’s data analysis would show “this myth of the millionaire tax migration is, in fact, a myth.”