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Are Rich People Fleeing Places With High Taxes? - YouTube
Channel: CNBC
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Wealthy New Yorkers may soon be getting the highest
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local tax rate in the nation.
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The combined city and state taxes will be fourteen
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point eight percent.
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In early April, the New York state legislature
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passed 212 billion dollar budget for fiscal year
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2022. Among spending cuts, it includes tax
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increases on the wealthy. Others have done the
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same.
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New Jersey raised that top rate from eight point
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nine seven percent to ten point seven five percent
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for those making a million dollars or more.
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Revenues are bleeding and states have to do
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something.
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Honestly, if I had the choice of taxing the wealthy
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more or preventing someone from dying on the
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street, I would always choose the other.
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Raising taxes on the wealthy is contentious, while
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advocates say it's fair in a way to decrease
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inequality. Others say it'll drive the wealthy out.
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After all, the one percent are critical to state
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revenues, paying up to nearly 50 percent of total
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state income taxes.
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There is a pack mentality to wealth.
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When all your friends are now in Florida and you're
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the uncool guy or woman who is in New York.
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That is something that could be a tipping point for
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why this becomes less of a trickle, as we've seen
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over the past three or five years and more of a
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flood.
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If they leave, there's a huge fiscal crisis.
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How do you pay for all of these services?
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And that affects everyone.
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While tax flight is often talked about, it's hard to
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prove empirically. Someone may move for warmer
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weather or to get closer to family.
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And it just so happens that taxes are lower where
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they're moving. What we do know is that
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millionaires and billionaires are highly tied to
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where they live and to make money.
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Considering I can do what I do from here in South
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Florida, having no income taxes is a great draw for
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sure.
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If taxes were your soul consideration where you were
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doing business, you weren't in New York anyway.
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This again is is really different.
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At the early stages of the pandemic, wealthy people
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left to seek safety, not to save on taxes.
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And they have now spent over a year in their second
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homes and are no longer bound to their offices in
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New York City or San Francisco or their children's
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schools. Raising taxes at this fragile junction
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could make the decision to officially relocate
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easier, and that could have serious repercussions
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for state revenues. Will the wealthy flee cities
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and states with high taxes?
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Covid-19 pandemic has dealt a heavy blow to
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America's states.
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In the early months of the pandemic, state lawmakers
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were warning of unprecedented fiscal crisis in
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nearly every state.
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The Brookings Institution estimated revenues
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falling by 155 billion dollars in 2020 and 167
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billion dollars in 2021.
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More complete data later showed that states ended
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fiscal year 2020 in better shape than initially
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expected, mainly thanks to federal aid and the
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unusual nature of the recession, where wealthy and
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high wage earners economic situation only got
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better. Even so, local government officials have
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remained wary. Limitations on borrowing to fund
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day-to-day operations left states with two options
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cutting expenses or raising revenue.
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When we talk about economic recovery, rich people
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don't need a recovery.
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They're actually richer right now than they were
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before.
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Among spending cuts, a number of states have either
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passed bills or are considering tax hikes on the
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wealthy to balance their budgets.
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I mean, I'm happy to to in and pay the taxes for
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infrastructure, for education, for technology
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advances. If it's not going to some of those
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things, it does make it a little harder to support.
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New York's tax increase, maybe the most rigorous,
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involving several tiers, starting for those earning
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one million to 25 million dollars and above.
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They expire in 2027
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I lived in New York, worked in New York, and now I'm
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going to live and work in Florida.
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And obviously, one reason I'm doing that is for
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lower taxes.
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It is very easy for financial firms to move to
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Florida because they don't have a huge headcount.
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Those are the guys the hedge fund guys make are in
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a way more than the Wall Street guys, the biggest
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salaries in New York City.
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And so it doesn't take a lot to have a big impact
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on tax revenues, especially if you've been away and
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you say, you know what, that's what they're going
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to do. I'm just not going to come back.
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You also can't ignore the evidence of 15 to 20
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percent commercial vacancy rates and lower asking
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rates and generally a picture that suggests the
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city's property taxes are going to be depressed for
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quite a while at the very best.
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Despite early reports that California was going in
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the same direction in January 2021, Governor Newsom
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rejected the policy.
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The state had an unprecedented year and ended with
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a budget surplus of 15 billion dollars.
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This wouldn't have been the first time the Golden
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State would tax the wealthy.
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In the 1990s, the tax cut didn't do anything to
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millionaire migration. Neither in or out migration
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was affected. The millionaire tax in 2004 didn't do
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anything. The millionaire tax in 2012, which was
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larger, had small migration effects.
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To the extent that there is an effect, is mostly
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driven by people sort of finding ways to, you know,
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essentially hide their money or find ways to report
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less income on their tax returns.
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In December 2015, the wealthiest man in New Jersey,
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David Tepper, moved to Florida.
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He paid so much in taxes that it's going to screw up
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possibly the entire state budget.
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It was covered by most media outlets.
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And although he never explicitly said why he made
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the move, many assumed it was for tax reasons.
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Frank Haines, he's a legislative budget and finance
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officer to the Senate Budget and Appropriations
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Committee of New Jersey, says, quote, We may be
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facing an unusual degree of income tax forecast
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risk if news reports are true that the person
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ranked by Forbes is the wealthiest man in Jersey
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has shifted personal and business domicile to
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another state.
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Tepper moved back in September 2020.
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There's just sort of one way interest and anecdotes
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and stories about millionaire migration, because
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that's a story. But when you hear the
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counterexample, people don't know what to make of.
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Young has devoted much of his career to studying the
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mobility of high income earners based on taxes.
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But he's one of the few. The idea that tax policy
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affects allocation decisions of wealthy individuals
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has long history.
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But the empirical evidence is limited.
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Unless you interview people as they're getting on
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their U-Haul or G650 private jet to go to Palm
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Beach for good, you don't know what their reasons
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are and how those reasons stack up.
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It's always hard to say people move for tax
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reasons. What we can do and what we are studying is
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the parallel causality or coincidentally of
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higher taxes and outmigration.
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According to Young, though, it's simple.
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Millionaires and billionaires spend a lot on trying
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to reduce their tax burden by hiring creative
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accountants and lawyers. They travel a lot, but
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they don't move a lot, and taxes are rarely their
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main consideration.
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I always thought about it, of course, right?
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I mean, taxes are important.
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That's John Kaiden. He's a member of Tiger 21, a
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peer membership network for high net worth
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individuals.
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But really, I was I was motivated to be in New York
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City and develop my career there.
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After my my marriage didn't work, I moved from New
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Jersey into the city.
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I recognized there would be additional taxes on New
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York and New Jersey, around the same at the state
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level. But I had the additional city taxes and it
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was worth it for me.
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New Jersey is my home.
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This is where I go to see doctors.
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This is where I have all my contacts.
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And I clearly taxes aren't going to be the
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motivational factor that's going to get me to move
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or domicile.
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Those sentiments are true for most Americans.
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Rich or not, more than two thirds live in the state
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in which they were born and the one and a half to
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two percent that do move from one state to another
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do it because of losing a job or family.
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And it's nearly as likely that those moves are from
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low tax states to high tax states.
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Of the ones that do move to a low tax state, it's
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primarily folks with low incomes rather than high.
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The reason that people are moving is largely housing
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prices, and then they oftentimes look like there's
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a lack of opportunity in that state.
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Anecdotal evidence tells a different story.
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The Boyd Company is a site selection consultancy.
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They help clients choose the right location to
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operate their business.
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Over the past decade or so, with respect to the
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exodus of California, markets like Phenix and Las
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Vegas and Reno and Salt Lake City have been big
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beneficiaries. The states that hold the line on
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taxes that are in this never ending game plan of
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borrowing, taxing and spending and the property and
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income tax savings for relocating worker from San
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Francisco or Los Angeles to a no income tax Reno or
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Las Vegas are just enormous.
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This is one of the greatest moves to the suburbs
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from urban areas,
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We expect there will be something close to an exodus
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from these really large cities where housing is so
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expensive.
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For months, news reports, preliminary data and
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anecdotes suggested that the pandemic had ravaged
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state budgets. And because of the mass urban
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exodus, states should be wary of increasing taxes
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on the wealthy. States took two austerity measures
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and spending dropped by six percent in the second
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quarter. In reality, many states and cities ended
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the year in decent shape, especially with the
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arrival of President Biden's American rescue plan.
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California had a record year in New York City's
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budget, generated a surplus of three point four
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billion dollars instead of the initially projected
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four point two billion dollar deficit.
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The wealthy and companies in New York are saying,
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wait a minute, we we actually were on board fixing
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that giant hole we had.
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But if we don't have the hole anymore, that's a
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very small hole.
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And you're not cutting and you're just going to tax
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us because there's a moral argument, well, then we
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don't want to be here anymore.
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This, for a relatively small revenue hole, has the
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potential to become a self-fulfilling prophecy.
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If you're worried about the revenue losses because
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people are coming back, then probably the worst
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thing you can do is impose very taxes that would
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make them not come back.
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As for that mass exodus, it didn't happen except for
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March and April patterns mimic 2019.
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Data collected by a number of moving companies show
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that the biggest inbound states were Idaho, North
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and South Carolina and Maine.
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And the biggest outbound states were New York,
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Illinois, California and New Jersey.
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Looking at regional data, California didn't
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experience a pronounced exit either.
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Just fewer people moving in moves in and out of
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those living in the wealthiest zip codes or similar
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to other zip codes. Except for in the Bay Area,
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their net domestic exits increased 178 percent for
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the entire area and 649 percent for San Francisco
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alone, compared to twenty nineteen.
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But it doesn't appear people were escaping the high
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taxes. Nearly 80 percent stayed in the state.
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That's why looking at plummeting rent prices only
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tells part of the story.
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The reason why some of the ideas about rich
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Californians moving away is because there's an
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enormous population of rich Californians.
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If you want to pull out like a lot of examples of
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them doing anything and go to California and you'll
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find just a an enormous base population to draw on.
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But you know who is leaving California are lower
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income folks who can't afford it.
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The data aside, there are plenty of anecdotes of
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wealthy individuals leaving urban areas.
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They've been gone for over a year and making it
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permanent will likely be easier than ever before.
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The question is, will it be enough to make a
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serious dent in New York and other states revenues?
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The pandemic just kind of sparked me to really think
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outside the box and think I can do this from
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anywhere even more.
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Since I've been down here, I've felt the swell of
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businesses moving down here for sure.
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There is now an emotional component to what was an
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existing financial component for why more want to
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leave. And again, we may find out that it was all
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overblown and they didn't leave the challenge is it
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will be too late.
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