I am increasingly in favor of a wealth tax on the ultra-affluent citizens of the U.S. I am totally against a newly proposed wealth tax imposed solely on billionaire’s residing in New York State. It is a horrible idea.
The proposal in question, was put forth by State Senator Jessica Ramos, a Democrat from Queens, and has been endorsed by ten other progressive officials including Alexandria Ocasio-Cortez. It contains six measures to dramatically increase revenues for NYS in light of expected shortfalls due to the effects of the pandemic. The wealth tax on billionaires would require them to pay capital-gains taxes each year as their assets appreciate, even if they don’t sell.
“There is no excuse as to why our billionaires are not paying their fair share, and that they’re hoarding their wealth and using loopholes to escape their fiscal responsibilities,”State Senator Jessica Ramos in The Wall Street Journal
I have a pretty extensive knowledge of the tax code, and I would largely agree with Jessica that the biggest avoidance at the federal level for most extremely wealthy people is due to the ability of these taxpayers to substitute the significantly lower tax on capital gains rate for the tax on income. To put it in numbers it’s roughly 23.8% versus 37% in the highest bracket, which is all income above $622,000. In addition, the ability to forestall this tax until the disposition of these appreciated assets, potentially in perpetuity to some extent1 is a luxury not afforded those who simply earn a living through wages, which includes many married couples making between $326k and $622k and paying income taxes at the 32% and 35% levels, or 1/3 to almost 1/2 more than 23.8%.
So you are hunting in the right area Jessica, but unfortunately New York State cannot go it alone2, any changes to this injustice must solely be imposed at the federal level.
That is because you have one piece of the puzzle all wrong:
Business groups and aides to Mr. Cuomo have said they are concerned that some taxpayers could leave the state if their taxes are further increased, especially after the pandemic demonstrated their ability to work remotely.
Ms. Ramos said fears of migration are unfoundedThe Wall Street Journal
The migration has already begun! In fact it’s been going on since the beginning of the 21st century and steadily increasing as the disparity between taxes in New York State and places like Florida and the Carolinas grows larger. Does the name Julian Robertson ring a bell? Not only was he the founder of one of the largest hedge funds before anyone knew what a hedge fund was (he closed his doors in 2000 after 20 successful years), but he also was an early billionaire “escaping” New York. To quote the opening lines of a lengthy profile on him and other NYC tax-refugees written by well known financial writer James Stewart back in 2012 and entitled “Tax Me If You Can”:
A prerogative of being a billionaire is the freedom to go anywhere, anytime.James Stewart in The New Yorker
“For travel to his vacation retreat in Sun Valley, Idaho, to his estate in New Zealand, to golf outings in Ireland, and to other far-flung destinations, Robertson used a private plane that landed at and took off from Farmingdale, Long Island; Teterboro, New Jersey; and LaGuardia Airport. He could go where he liked, when he liked, but there was a catch.
Since New York City tax laws don’t apply to people who are deemed to be nonresidents, even if they own a residence in the city and work there, Robertson was allowed to spend no more than half a year—a hundred and eighty-three days—in New York City.”
183 days max in NYC, that’s a piece of cake if you have a private plane. Most billionaires do.
If you’re not familiar with Julian Robertson, other “non-NY” residents such as Martha Stewart are mentioned in the story, which is definitely an in-depth must read for any legislator concerned with tax inequity and the hazards of state specific solutions.
The name Derek Jeter certainly should ring a bell I hope? Jeter both batted in New York and battled the New York Department of Taxation back in the aughts over his residency. In other words he both went yard back in the day and is probably worth a yard today. Yet he’s no longer a New York State resident per an article written in 2013 and fittingly entitled “Derek Jeter Flees New York, Tax Savings Soon To Follow.”
Finally, and most ominously I point you to a story that needs no introduction:
“One Top Taxpayer Moved, and New Jersey Shuddered”
Though it was written in 2016, it set the precedent for what was to come – I feel like the ghosts of Christmas past, present, and future – and I will share with you only the opening line in the hope that you see the light:
One man can move out of New Jersey and put the entire state budget at risk.Robert Frank of The New York Times
….but definitely read the whole thing, you know the “must read for any legislator concerned with tax inequity and the hazards of state specific solutions yada yada yada”
The precedent as it were, is the pandemic, and it has set off a cavalcade of billionaire, centi-millionaire, and even deca-millionaires movement. Expressing the belief to the public that fears of a migration are unfounded is misleadingly Trumpian in its attempt to push legislation that will do long term damage to the people it is seemingly intended to help. Show me the numbers, any numbers, to back up this statement.
The proposed New York billionaires tax is a poorly researched short term solution that serves only the grandstanding interests of those promoting it. Though I am in agreement with the sentiment (and understand the injustice) behind it, I also fully realize that righting the wrongs of our current U.S. tax system cannot be done at the statewide level. Like it or not the risk of an enormous migration by the wealthy and a catastrophic and permanent hit to revenue would most assuredly lead to a downward spiral for both the city and the state.
the top 2% of taxpayers—about 188,000 filers—account for just over half of the state’s income taxesfrom Wall Street Journal article on proposed billionaires tax
In fact all the proposed tax increases need to be put through a serious cost-benefit analysis in terms of migration effects. Why had so many wealthy been willing to uproot themselves from the greatest city in the world the past few years? Previously their departure and tax revenues were patched over by huge gains in markets, start-ups, and real estate, but WFH has been a game-changer vis-a-vis mobility and giving people a taste of life outside of NYC. In fact we’re also at risk of losing many in the tier just below the billionaires, and the tier just below that. Don’t cut off New York to spite the wealthy.
If I were a NYC/NYS city or state legislator, some serious soul-searching is definitely in order as to what Florida is doing right. And if I were a U.S. congresswoman or Senator representing the State of New York I’d be keeping my nose out of the state battles and start being clever, not loud, about enacting whatever is necessary to correct the wrongs nationwide. That’s the best way to get back what New York has lost.
Some Democratic Lawmakers Push For Tax On Billionaires – “the top 2% of taxpayers—about 188,000 filers—account for just over half of the state’s income taxes”
Tax Me If You Can – there’s definitely a wrong here, but billionaires can and will flee
Derek Jeter Flees New York, Tax Savings Soon To Follow – and it’s not just billionaires
One Top Taxpayer Moved, and New Jersey Shuttered – “Last month, during a routine review of New Jersey’s finances, one could sense the alarm. The state’s wealthiest resident had reportedly “shifted his personal and business domicile to another state,” Frank W. Haines III, New Jersey’s legislative budget and finance officer, told a State Senate committee. If the news were true, New Jersey would lose so much in tax revenue that “we may be facing an unusual degree of income tax forecast risk,” Mr. Haines said.”
As Wall Street Migrates To Florida, Hedge Funders Move To Offload Manhattan Homes – the migration has begun, how far do you want it to go? Remember David Tepper!
- the details of which I’m not going to delve into, but a significant portion of highly appreciated stock can be passed on to the next generation at which point under present tax rules the cost basis is stepped up to the price on the date of death, allowing the heir to receive the stock tax free and sell it without paying any capital gains whatsoever. Yum! [↩]
- it already has one leg covered by treating capital gains as ordinary income [↩]