What’s Reshaping Florida, California And New York?
Unknown: What really excites me about Miami, pro technology, pro capitalism, pro immigration, you know, cheap housing, low cost of living low taxes when all your friends are now in Florida, and you're the uncool guy or woman who's in New York, that is something that could be a tipping point. We've had massively bad recessions. We had a $35 billion budget shortfall in 2001. Somehow we come back, but you never know when that time is going to be the last.
It's been called the anti California dream, the tech Exodus, the great migration between 2008 and 2019 18,000 companies have left California for more tax and regulatory friendly states. Damn, we're talking about Elon Musk moving from California to Texas Oracle saying they are changing their corporate headquarters from Redwood Shores Calif to Austin, Texas. And while it may be an overstatement to say California is hemorrhaging people, some of California's wealthiest residents like Elon Musk are leaving to California has to realize that eventually all of the anti business laws and regulations they pass we're gonna catch up with them. Erica Douglas was an early part of the Exodus. She moved her seo software company whoosh traffic and her employees to Austin six years ago. I can remember writing
one check to the state of California for one year, and it was like $24,000 for a year and that was just income tax to the state that was not federal tax. The state's population and job growth have both slowed to a trickle census data shows more than 650,000 people left in 2019, after seven years in a row where departures were on the rise. In fact, California has lost more people to other states than it's gained for much of the last two decades. And with the rise of remote work in 2020 added extra flexibility, over 135,000 More people left California than moved here, the third largest net migration loss ever recorded. As we lose really successful businesses such as Oracle and Hewlett Packard, that changes how many high paid jobs we're going to have changes really the whole nature of the state, it changes how many tax dollars go into Sacramento, how many tax dollars fund our schools, whether there's money left over to repair roads and bridges is really a huge problem in the state that the state is facing. We asked the experts and
those leaving what's behind this trend? Can anything be done to reverse it? Or is this a true shift for business in California as we know it. For a century and a half, California was in an almost constant state of Growth with booming business and expanding population. There's something magic in California. The culture
just seamlessly and consistently moves towards what's next with new ideas. California's Gold Rush that started in 1848 lead to one of the largest migrations in US history with hundreds of 1000s coming from across the country in the world. The population explosion qualified California for statehood in 1850, just a few years after it was seated by Mexico, California was an economic powerhouse by the end of the century, home to iconic brands like Wells Fargo and Levi Strauss scientists and researchers started flocking to the Bay Area in the early 1900s, when San Francisco's port and nearby Moffett Field made the area a major hub for early telegraph, radio and aerospace industries. Stanford university
founded in 1885, led the way in encouraging students to commercialize their ideas leading to graduate students to start what many consider the first Silicon Valley startup in 1939. Hewlett Packard, California has been the leading indicator in software, digital technology, modern mobility, the environment, the space industry, and is the front door between the United States of America and the Pacific Rim in the Asian markets. So watching our state, fumble and stumble is not just something that's a California issue. It is a national and global issue. California's economy has grown to the fifth largest in the world, it had $65.6 billion in VC investment in 2019. By far the
highest of any state, all that venture capital is concentrated in San Francisco and Silicon Valley. But once those businesses do get a cash infusion from venture capital and get on their feet and become successful, then the advantage of being in California Silicon Valley is much less and that's when we see them leaving for the longest time you wanted to run the circles. If you were in tech, you needed to be able to run into other people in tech and have that you know that brain there in one place.
Increasingly, I think HP and others are sending the signal in a much more remote work oriented environment where you have the tech and we've also had this forced experiment in remote work that basically succeeded that Silicon Valley is wherever you want to be. HP is moving its enterprise division headquarters to Houston and many others are following Oracle founded in the 70s. Alongside apple and Atari announced in December that it's relocated its headquarters to Austin Palantir is relocating to Denver, Elon Musk moved from Los Angeles to Austin where Tesla's building its next giga factory. What really is surprising is the really major big companies that have put down roots here are the ones that are leaving, the mom and pops are going as well. But when they leave, they take 20 workers or 30 workers with them. They're not taking 1000s
of workers with and they're not taking Elon Musk. Other major companies that have moved their headquarters out of California in recent years include Toyota, Charles Schwab, Nestle and Jamba Juice. A 2018 study found that 1800 companies left in 2016, alone, relocating mostly to Texas, followed by Nevada, Arizona, Colorado, Oregon, and Washington. This has been a trend for a while, but it's accelerated now. We have high taxes, high housing costs, cost of living California is about 50%, higher than the median state, public services are not being delivered. So we've never really had that all that
combination occurring, as we've had in the past, and we've never had alternative places to move to. So for example, now in Texas and Austin, Texas, there's a big tech hub there now that the pandemic has largely made commute times irrelevant. Moving is easier and makes more financial sense. Even if you would look and say I wouldn't found a company in California now there are huge costs in actually relocating your company. But those costs are less when a lot of your employees aren't in the office anyways may not be coming back. And when California is saying we
might raise taxes substantially while other states are saying we're okay, we're not raising them. In a study of more than 2700 Bay Area workers to have every three say they'd consider relocating if they could always work from home, something Dropbox, Twitter and Facebook have offered with the caveat that moving out of California could trigger a pay cut. If I can live in Utah and work for a California company or if a my California company can move to Texas and I can stay or move anywhere else, then suddenly, it's a lot easier to make the tax and other business cost decisions. The front of mine decisions. And Edelman intelligence survey found that 53% of Californians are considering leaving the state with the desire highest among millennials, I lived as understand what the rest of the world was. I didn't want to be stuck in my tech bubble for the rest of my life. And that's also one of the reasons I came to Austin early. I think it's a reasonable question, say
at what point does the state break we're seeing that tested right now as we see the remote work environment. Wealthy influential individuals leaving recently include Oracle's Larry Ellison, Dropbox CEO Drew Houston Palantir, co founder Joe Lonsdale, high profile investors and influential personalities like Keith Raboy, Tim Ferriss, Ben Shapiro, Peter Atea, and Joe Rogan, who's leaving California for Texas. I just want to go somewhere in the center of the country. Somewhere it's easier to travel to both places and somewhere we have a little bit more freedom. Elon Musk also cited freedom as a major reason for his move to Texas criticizing California strict handling of the pandemic. Last May, Musk openly defied California shut down orders by reopening his plant facing strong reactions from some politicians. You're smart enough to
build SpaceX, PayPal, Tesla, maybe we should have sat down with you and asked you what do you need to be more successful in California. And then there's all the other non pandemic related regulations that come with living in a blue state. Democrats hold a veto proof super majority in both houses of the California State Legislature, what some call progressive policies others see as unfriendly to business we really become highly regulatory when it comes to fuel use automobile emissions, all those types of things water, cap and trade are to try to keep businesses from polluting too much. That's an imposition for some folks, all these things together make it more costly to do business in this state.
CNBC measures states on more than 60 different metrics in 10 key categories of competitiveness. In 2019, Virginia, Texas and North Carolina took the top three spots. California came in 32nd and came in last when judged on the cost of doing business. When it comes to tax structure for business. The Tax Foundation ranks
California at the very bottom also with only New Jersey ranked lower. what businesses are finding is that they're able to create much more value for their shareholders, they're able to generate higher profits, they're able to hire very high quality workers at lower salaries in other places, while tax rates increase based on how much you make California's top marginal income tax rate of 13.3% is far higher than any other state. New York's for example is 8.8%. This is a personal issue. income tax form in California, I never want to see one of these in the great state of Texas, nine states, including Texas have no individual state income tax on wages. Now, these states
all have other taxes that offset this. To some degree, Texas has high property taxes. Washington is gone after businesses with a lot of unique business taxes. But nonetheless, when you
look in California, that's high on almost every tax across the board. Even a state that has some trade offs can look really good. There are groups working on incentives to keep businesses and innovators in the state. Even if they're looking to leave high bay area costs behind you can take that Bay Area level income and it goes so much farther. The Greater Sacramento Economic Council launched a campaign to attract remote workers with newfound flexibility. I told all three of my kids are in their 20s If I'm starting my life in my 20s, and I'm picking any place in the world to start it. I'm picking
California on a state level, California has approved giving more than $73 million in tax credits to 22. high growth companies over the next five years through its California Competes income tax credit. But the application process is highly competitive. Still, California's
business taxes are some of the highest in the nation, and certain cities tack on even more. San Francisco just passed what they call the overpaid CEO tax where companies will start paying taxes depending upon the ratio of the CEO salary to the median worker at that location. While the super wealthy, maybe fleeing disproportionately high taxes, the cost of living comfortably is a consideration for everyone in California. I always rented when I was in the Bay Area, I never had enough money to buy a house there. I bought my first house here in Austin, you can live 2030 minutes away and have a house for three, four or $500,000 and have a nice little backyard and a place for your dog to roam around and a place for your kid to play having a little bit more space and you know, land and it just it just feels right. We also have Scott
Shepherd relocated his family from Riverside, California to northern Idaho in 2019. All of our major line items across the board are significantly lower at the rate of 30 to 40%. You know, we've got $1.98 for a gallon of gas.
Shepard runs exit california.org one of a growing number of online relocation companies helping people move, he says about twice as many people have been reaching out about the service since the pandemic began lots of restrictions, lots of regulations, freedoms being taken away. Housing is impossible in California we are by all estimates, between three and 4 million units short of housing. The median single family home in San Francisco right now costs about $1.6 million. Rent in San Francisco is easily five to $6,000 per month. So you multiply that and that means you're not hiring someone who is technologically advanced and skill without paying them 150 $170,000 per year, and you simply don't need to pay that type of salary in Texas. Although California remains a top
destination for people moving from other countries and rich transplants relocating from out of state. The White House reports nearly half of the country's unsheltered homeless people live on the streets of California and a growing number of middle and low income people are moving out of state with the majority of those leaving reporting and annual income under $100,000. Whether they are people at the carwash daggers at the supermarket attendees at the rest homes, and what are we doing to assure ourselves that we'll be able to keep that critical part of our employment infrastructure those folks at the bottom because we're toast without it, of those surveyed by Edelman intelligence 53% cited housing as the primary motivator for relocating. Hiring in a state with a lower cost of living also helps Douglas get her startup off the ground. It opens up the ability for people to work for startups, the ability for people to not have to feel like they're paying their whole life savings for an apartment every month. And my ability as a business owner to be
able to hire those people at a very reasonable and fair rate. But a rate that's not going to be like a Google $450,000 A year right out of the gate type of thing. Meanwhile, the pandemic has robbed California of some positives once used to justify its high cost of living. When I was looking to raise money for my startup a few years ago, a lot of investors in San Francisco said, Well, I want to be able to sit in on board meetings in person, you know, I will only invest within a 50 mile radius of San Francisco because I want to be able to sit on those board meetings. Well now board meetings are conducted via zoom and the minutes are distributed through email. Now, if you can
work anywhere, you don't care, you can go somewhere else that has a lower cost of living and lower cost of taxation. So a lot of states not just California but New York and other states that have historically banked on offering something unique have to worry that they're not so unique anymore. With an economy Bigger than many countries will California feel the impact of big companies leaving, and with super earners paying 40% of the state's tax revenues? Can California afford to lose billionaires like musk one of the richest men in the world, some states like New Jersey has actually had to amend budgets when a single billionaire left the state. California would not be at that point where Elon Musk leaving California means they have to amend their budget. But as he leaves and as companies like HP, and Oracle and others relocate a significant amount of their operations, this has a huge impact both immediately, and in the long term, the investments they would make them being located in a different place the employment opportunities. For those who have left there are new challenges to contend with in new states, including resistance to Californians changing things elsewhere. This is
not an invitation to simply transfer the California to Texas. We Texans are very inviting the people from California. But that doesn't mean we want you to California or Texas. I don't want Austin to just become the next San Francisco think what we want is to have Austin's own unique culture, make startups that work for a while there, I was a little bit insecure to let anyone know that I was from California. When I first moved here I had California plates and I had individuals given me a nice steady honk the horn behind me on the freeway to let me know that they weren't happy that I was in front of them were Shepard moved in Idaho, as in other states, California transplants drive up housing prices, people who live here, they're getting priced out of the market. I mean, you've
got 1015, potentially even 20 people making an offer on the same property. And there are certainly things to miss about the Golden State. My heart still, you know, has a piece of California and and it's a beautiful state and it has so many wonderful things about it. I still have family there. But until I see things changing statewide, I don't anticipate things changing anytime soon. Still, a few big names like Twilio CEO Jeff Lawson and Airbnb CEO, Brian Chesky. have
committed to staying in a state and specifically the Bay Area. If enough feel that way that could work. The challenge is at some point, they'll do the calculation of okay, what would my books look like I boasts in California, San Francisco versus where I in Texas. And many of the biggest Silicon Valley based companies haven't announced any plans to leave Google Apple, they are doing so well, that the last thing they have to think about is moving. It's very much in their interest to stay here and get the latest of what's going on mind if you will these beautiful minds at places like Stanford and cow. But if California's
people are the true draw, will it lose its edge if enough of them leave? Some say there's a tipping point at which the flow of businesses and people out of California outpaces its incubation of fresh ideas that entices businesses to come and to stay is a challenging issue that California faces and there's really no solution other than to make the state more competitive in terms of business costs and taxes in terms of housing costs. until that's done, California will probably continue to lose businesses to other states. For now, big tech stakeholders will watch to see how legislators handle upcoming proposals. Some would
target tech companies, specifically taxing data or digital services, one of the worst things you could do right now is signal to these companies that are on the fence. If you stay the taxes are going way up. But that's the conversation we're having right now. And there comes a point in which a lot of businesses are going to say we don't need to be in California and increasingly we can't afford to be other proposals could raise the corporate income tax to more than double the rate in all but one other state or push the Combined Federal California top marginal tax rate to a whopping 53.8%. I'm hopeful state legislators will take a step back and ask themselves, we better not do this. We're risking
the state's economic future. We should make California a more friendly state to do business and we don't want to drive away anymore really incredibly productive, innovative people. We've had massively bad recessions we had a $35 billion budget shortfall in 2001.
It costs the governor's job but we've had those before somehow we come back but you never know when that time is going to be the last. Got Miami Beach average sale prices they're up 72% got prices up double digits in Boca Wellington Bal Harbour Delray all across southern Florida it isn't called the Sunshine State for nothing. Over 230 days of sunshine per year 600 And some miles of beach Disneyworld, fancy sports cars a wild night life and of course, no income tax. My kids nickname because we live in Orlando. They called me Disney dad. We were come here because I was always in a good mood. We didn't stop hearing about Florida in 2020 From Florida now golden ticket in Florida it sounds like Florida Well, you're not alone. Some of
Wall Street's biggest names like Goldman Sachs Elliott Management and Citadel group however are considering opening offices in Florida. High profile investors like Keith Raboy Shervin peach bar and John orange are already made the move. Even JetBlue is considering it for years even though people were talking about moving it really wasn't cool among the wealthy to pay for it. It's like okay, you couldn't hack it in New York, go to Florida. Now you're the chump who stayed in New York. But it's not just Covid reports a Florida slowly morphing into a legitimate tech and financial hub has been loosely talked about for over a decade. In 2018,
Florida solidified its place in the big leagues when $2.8 billion was raised in venture capital. That trend has continued all throughout 2020 I think actually Miami has the opportunity within the next like five to 10 years to not only become a tech hub, but the largest tech hub in the United States. Never in my three decades of doing this Have I ever seen the level of economic development activity. But Florida's
economy has long been marked by low paying tourism and service sector jobs, inequality and ravaging climate change. It's ranked near bottom for affordable housing and health and unemployment insurance access as much as people understand Florida to be a beautiful place to go and vacation. There is almost a synonymous or a parallel understanding that the state of Florida is backwater hail for a lot of people, as consumer and employment behavior shifted during the pandemic quality of life became a priority. And Florida seemed like an obvious choice, at least on the outside. Three Floridian cities
were among the top six choices for New Yorkers fleeing Covid So can Florida become the next big tech and finance hub? In December 2020 venture capitalists Dillion Aspro off, tweeted, okay, guys, hear me out? What if we move Silicon Valley to Miami? I sort of this like first moment where I'd kind of I'd say, like, a crack in the foundation of my like, you know, belief in San Francisco sort of occurred. Within hours. Miami Mayor Francis Suarez responded, how can I help? You know, by time I visited in March actually had more late stage in particular investors, let's say Series B and beyond. And San Francisco did partially because how all this sort of crossover and hedge funds have entered into venture capital are deploying more dollars than even the venture capital firms are. And so this nexus of power was sort of already shifting and then a lot of those who moved to Miami already, both professionally and personally, sort of had a sudden realization. I was like, Oh my God. Now being here. I got here. That happened on a Friday
night and by Sunday night, we you know, put a bid in on a house in the Design District. DeLeon tweet and eventual move has fueled momentum that Suarez and other locals have capitalized on from conversations with celebrities like David Beckham and tech billionaire Peter Thiel, to soft banks pledged to invest $100 million in the city. The notion that high earning jobs in tech and finance could migrate down Florida has locals buzzing pre Covid We have landed maybe 50 or 60 financial service firms. Many of them had somewhere in the range of $500 million assets under management. Now we're seeing companies that
have assets under management. Well over a billion dollars the state has many draws. Aside from the sunshine it's welcoming business climate is high on the list. According to the Tax Foundation after Wyoming, South Dakota and Alaska, Florida is the fourth friendliest business state in the country. No individual income tax and low corporate and unemployment insurance taxes. Looking at more than 60 measures of competitiveness, CNBC ranks the state 12 For for access to capital after California, New York and Texas was around tax season. And my
accountant jokingly said to me, why don't you go move to that house you built down there and stop busting my chops every April 14. I was like, alright, Castleberry is a member of Tiger 21 appear membership network for high net worth individuals. He moved his family of six to Orlando about six years ago, lifestyles fantastically obvious, the weather's great. There's beaches all over the place. You're on either coast,
your airports are fantastic. You'd be all over the country very quickly. But really what's happening down here is really incredible everywhere you drive around. You see buildings the past few years, we saw it happening then tack on Covid. And it just exponentially changed the impact. The influx of the wealthy has
reflected in real estate sales to South Florida home sales valued $1 Million and above jumped between 40 and 50% in 2020 Compared to 2019. This is a long term move for these companies. And I don't believe that they would be signing eight to 10 year leases, with options to expand. I don't believe that they would be putting their kids in schools and up rooting them from their private schools and public schools in New York, Boston and Connecticut if this weren't long term, and I don't believe that they would be buying $20 million homes if this were short term. There's so many amazing, talented people From from every standpoint, from marketing standpoint, from creative standpoint, from leadership standpoint, and people are always willing to move if listen, if I was telling people to move to Nebraska, it might be a little bit difficult sell. The average financial salesperson or analyst in Florida makes about half of what they'd make in New York. That could be a deterring
factor for individuals choosing between job offers in New York or Florida. We have a company that we recently offered, you know, a term sheet here to NRA that said, you know, for the past three or four years that they've been building their company here, it really struggled to find the talent that they needed locally in Miami, and also really struggled with being able to import talent. And they said that over the course of Covid, and in particular now with Miami tech week flipping, they're basically importing talent left and right and they're able to sort of get their pick a litter of the top tier engineers in the world migration trends are a strong indicator of growth. Between 2010 and 2019, Florida received over 2.3 million more people than it lost the highest in the nation. The population grew by nearly 15% In the last decade. But more than half of that growth came
from people aged 60 and above. In 2020. Contrary to many reports, population growth was expected to slow down. According to an independent analyst on cellphone data migration to Tampa and Orlando surged, but dropped sharply in Miami. The overall impact ended up being roughly neutral creation of millionaires as it happens in New York City. It doesn't happen in Florida, Florida is a place where millionaires go to retire. If you're a young person thinking about you know, where am I going to launch my career, New York is still you know where it's at, you know, and that'll be the story next year. 10 years from
now, Florida's economy has come a long way over the past 50 years. In 1963, it was the 11th largest economy in the country. Today, it's the fourth just behind New York, Florida's gross state product, which is commonly used to measure the health of an economy also stayed well above the national average in the seven years prior to Covid. Except for the dips in the Great
Recession, employment grew in every category until 2022. Health of an economy is really how the quote unquote bottom is doing. How are teachers doing? How are our public sector workers are doing a you will see in Florida, just like in every other state, that teachers are going mad, trying to try to provide some sort of education for children. Parents are going mad, trying to provide some sort of lives for their children and live for themselves. The economy is not
healthy, right? The very few are healthy, just like anywhere else in the world. Covid was tough on Florida, real GDP fell 2.9%. And despite its lacks Covid closures and the stories of mass influx of people between q3 and q4 the state only grew 3.1%. In comparison to other states with no income tax like Texas and Tennessee, it's hard to believe that there's this rise of Florida, Florida has a growing population. And that's mostly a lower
income earning population that are leaving, you know, the New York area, the New York metro area because, again, have enormous affordability problems. You know, while an immense amount of wealth enters Florida annually, median income in the state is about 13%. below the national average. Most employed Floridians work in construction, restaurants and food services, and elementary and secondary schools. Inequality is increasing over time. And the state spends less on
public services like health and education per capita than any other state in the nation. That has resulted in social and economic problems like suppressed low and middle income wages, social fragmentation, poor health and violence. There's 234 Different Florida's that people live in. There's a tax haven, Florida where people can lay out on the beaches or sit in their pen houses. There's the Florida of tourism where people could go to Disney and then there's the state of farm workers who work from sunup to sundown get shuttled from school buses from their homes have no protection usually have no papers. There's a life of black people who continuously live with no representation, have the worst jobs in the state. The best things that you
know about Florida and those beautiful postcards are at the expense of black people, of immigrant people, Haitian folks, African folks, these are the invisible people who make Florida run. Spending more than a year working from home has reassured companies that they can cut back on price in New York City or San Francisco offices while maintaining revenue. And Florida has benefited from that shift. But for it to
become an epicenter could take time. It took New York City centuries to build its agglomeration and economies of scale. It remains to be seen if and how South Florida can accomplish that. What really excites me about Miami is ethos that everybody here is really excited about right? Pro technology, pro capitalism, pro immigration, you know, cheap housing, low cost of living low taxes, being able to like grow into that I think it's really important and all the early signals to me, seem you know, quite positive, but it'll be entering to see sort of in September and October you're still seeing this continuous exponential growth. This is all real. This is not a dipping of the toe in the sand. We know this because they're talking to local accountants and local attorneys and the traffic is very high to those offices.
Wealth wealthy New Yorkers may soon be getting the highest local tax rate in the nation that combined city and state taxes will be 14.8%. In early April, the New York State Legislature passed the $212 billion budget for fiscal year 2022. Among spending cuts includes tax increases on the wealthy. Others have done the same in New Jersey raise that top rate from 8.97% to 10.75%. For those making a million dollars or more revenues are bleeding and states have to do something honestly, if I had the choice of taxing the wealthy more or preventing someone from dying on the street, I would always choose the other raising taxes on the wealthiest contentious while advocates say it's fair in a way to decrease inequality. Other say it'll drive the wealthy out, after all, the 1% are critical to state revenues paying up to nearly 50% of total state income taxes. There is a pack mentality to well,
when all your friends are now in Florida, and you're the uncool guy or woman who's in New York, that is something that could be a tipping point for why this becomes less of a trickle, as we've seen the past three or five years and more of a flood if they leave, there's a huge fiscal crisis. How do you pay for all of these services, and that affects everyone. While tax flight is often talked about, it's hard to prove empirically, someone may move for warmer weather or to get closer to family. And it
just so happens that taxes are lower whether they're moving, what we do know is that millionaires and billionaires are highly tied to where they live and to make money. Consider I can do what I do from here in South Florida. Having no income taxes is a great draw for sure. If taxes were your sole consideration where you were doing business, you weren't in New York anyway. This again is is really different. At the
early stages of the pandemic wealthy people left to seek safety not to save on taxes, and they have now spent over a year in their second homes and are no longer bound to their offices in New York City or San Francisco, or their children's schools. Raising taxes at the federal junction couldn't make the decision to officially relocate easier and that could have serious repercussions for state revenues will the wealthy flee cities and states with high taxes. Covid 19 pandemic has dealt a heavy blow to America's states. In the early months of the
pandemic state lawmakers were warning of unprecedented fiscal crisis in nearly every state the Brookings Institution estimated revenues falling by $155 billion in 2020 and $167 billion in 2021. More complete data later showed that states ended fiscal year 2020 in better shape than initially expected, mainly thanks to federal aid and the unusual nature of the recession where wealthy and high wage earners economic situation only got better. Even so local government officials have remained weary limitations on borrowing to fund day to day operations left states with two options cutting expenses or raising revenue. When we talk about economic recovery. Rich people don't need a recovery. They're actually richer right now than they were before among spending cuts, a number of states have either passed bills or are considering tax hikes on the wealthy to balance their budgets. I mean, I'm happy to pitch in and you know, pay the taxes for infrastructure for education for technology advances, if it's not going to some of those things. It does make it a little harder to support.
New York's tax increase may be the most rigorous involving several tiers, starting for those earning 1 million to $25 million and above, they expire in 2027. Now I lived in New York, worked in New York, and now I kind of live in work in Florida. And obviously one reason I'm doing that is for lower taxes, it is very easy for financial firms to move to Florida because they don't have a huge headcount. Those are the guys, the hedge fund guys who make far and away more than the Wall Street guys, the biggest salaries in New York City. And so it doesn't take a lot to have a big impact on tax revenues, especially if you've been away, and you say, You know what, that's what they're gonna do. I'm just not going to come back. You also can ignore the evidence of 15 to 20%
commercial vacancy rates, and lower asking rates and generally a picture that suggests the city's property taxes are going to be depressed for quite a while at the very best, despite early reports that California was going in the same direction in January 2021. Governor Newsom rejected the policy the state had an unprecedented year and ended with a budget surplus of $15 billion, but this wouldn't have been the first time the Golden State would tax the wealthy in the 1990s. The tax cut didn't do anything to millionaire migration, neither in or out migration was affected. The millionaire tax in 2004 didn't do anything to millier tax in 2012, which was larger and small migration effects to an extent There's an effect is mostly driven by people sort of finding ways to, you know, essentially hide their money or find ways to report less income on their tax returns.
In December 2015, the wealthiest man in New Jersey, David Tepper moved to Florida, he pays so much in taxes, that it's gonna screw up possibly the entire state budget, it was covered by most media outlets. And although he never explicitly said why he made the move, many assumed it was for tax reasons. Frank Haines, he's a legislative budget and finance officer to the Senate budget and appropriations committee of New Jersey says, quote, we may be facing an unusual degree of income tax forecast risk. If news reports are true that the person ranked by Forbes as the wealthiest man in New Jersey has shifted personal and business domicile to another state tip removed back in September 2020. There's just sort of one way interest and anecdotes and stories about millionaire migration, because you know, it fits a story. But, you know, when you hear the counterexample, people don't know what to make of it. Young has
devoted much of his career to studying the mobility of high income earners based on taxes, but he's one of the few the idea that tax policy affects location decisions of wealthy individuals has a long history, but the empirical evidence is limited. Unless you interview people, as they're getting on their U haul, or G 650. private jet to go to Palm Beach for good. You don't know what their reasons are, and how those reasons stack up. It's always
hard to say, people move for tax reasons what we can do and what we are studying is the parallel causality, or coincident Tality of higher taxes and out migration. According to young though, it's simple millionaires and billionaires spend a lot on trying to reduce their tax burden by hiring creative accountants and lawyers. They travel a lot, but they don't move a lot. And taxes are rarely their main consideration. I always thought about it, of
course, right. I mean, taxes are important. That's John Kayden. He's a member of Tiger 21 appear membership network for high net worth individuals. But really, I was I was motivated to be in New York City and develop my career there. After my my marriage didn't work. And I moved from New Jersey, into the city, I recognize it would be additional taxes of New York and New Jersey around the same at the state level. But I had the additional city taxes and it was worth it for me, you know, New Jersey is my home. This is where I go to see doctors this
is, you know, where I have all my contacts. And I clearly, taxes aren't going to be the motivational factor that's going to get me to move or read domicile, those sentiments are true for most Americans rich or not more than two thirds live in the state in which they were born and the one and a half to 2% that do move from one state to another do it because of losing a job or family. And it's nearly as likely that those moves are from low tax states to high tax states of the ones that do move to a low tax state. It's primarily folks with low incomes rather than high. The reason that people are
moving is largely housing prices. And then they you know, oftentimes they feel like there's a lack of opportunity in that state. Anecdotal evidence tells a different story. The Boyd company is a
site selection consultancy, they help clients choose the right location to operate their business over the past decade or so. With respect to the exodus of California. markets, like Phoenix and Las Vegas and Reno, and Salt Lake City have been big beneficiaries, the states that hold the line on taxes, but that aren't in this never ending gameplan of borrowing, taxing and spending. And the property and income tax savings for a relocating worker from San Francisco or Los Angeles to a no income tax Reno or Las Vegas, for example, are just enormous.
This is one of the greatest moves to the suburbs from urban areas. We expect there will be something close to an exodus from these really large cities where housing is so expensive for months. News reports preliminary data and anecdotes suggested that the pandemic had ravaged state budgets and because of the mass urban Exodus states should be weary of increasing taxes on the wealthy States took two austerity measures and spending dropped by 6%. In the second quarter. In reality, many states and cities ended the year in decent shape, especially with the arrival of President Biden's American rescue plan. California had a record year in New York City's budget generated a surplus of $3.4 billion instead of the initially projected $4.2 billion
deficit. The wealthy and companies in New York are saying women we actually were on board, fixing that giant hole we had. But if we don't have the hole anymore, that's a very small hole. And you're not cutting and you're just going to tax us because there's a moral argument. Well,
then we don't want to be here anymore. 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. As for that mass exodus, it didn't happen except for March and April patterns mimic 2019 data collected by a number of moving companies show that the biggest inbound states were Idaho North and South Carolina and Maine and the biggest outbound states were New York, Illinois, California and New Jersey looking at regional data, California didn't experience a pronounced exit either just fewer people moving in, moves in and out of those living in the wealthiest zip codes were similar to other zip codes, except for in the Bay Area. Their net domestic exits increased 178% for the entire area. And 49% for San Francisco alone compared to 2019.
But it doesn't appear people were escaping the high taxes nearly 80% stayed in the state. That's why looking at plummeting rent prices only tells part of the story. The reason why there's so many anecdotes about rich Californians moving away is because there's an enormous population which Californians if you want to pull out like a lot of examples of them doing anything, go to California, you'll find just an enormous base population to draw. But
you know, who's leaving California? Are you the lower income folks who can't afford it? The data aside, there are plenty of anecdotes of wealthy individuals leaving urban areas they've been gone for over a year and making it permanent will likely be easier than ever before. The question is, will it be enough to make a serious dent in New York and other states revenues? That pandemic just kind of sparked me to really think outside the box and think I can do this from anywhere even more since I've been down there. I felt the swell of businesses moving down here for sure. There is now an emotional component to what was an existing financial component for why more one elite and again, we may find out that it was all overblown and they didn't leave the challenges it will be too late.
2022-03-11 09:34
