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What Really Broke The Camel’s Back

Andrew Cuomo speaking outside the New York State Capitol.
New York Gov. Andrew Cuomo. Photo by Wikimedia Commons user WikipediaLover444.

I don’t think New York Gov. Andrew Cuomo fully understood the proverb about the straw that broke the camel’s back.

The governor, newly inaugurated for his third term, seems to believe that the camel would have strolled merrily into the sunset but for that one last straw. The point of the story was that even in the absence of that last tiny bit of weight, the overburdened dromedary would have staggered and suffered before finally collapsing.

New York state, where I lived the majority of my adult life until I decamped a few years ago, was the nation’s most populous state when I was born in the 1950s. It now ranks fourth and is steadily falling further behind Florida, where I now make my home. In absolute numbers, New York is losing people faster than any other state, while Florida is, as usual, among the top gainers.

Local real estate markets reflect these trends. The Wall Street Journal reported this week that South Florida, especially, is doing well while Manhattan is struggling. And despite a national economy that is powering ahead and a stock market that spent a good part of 2018 near record highs before stumbling in the fourth quarter, New York is suddenly facing a revenue shortfall, as are neighboring states in the Northeast. In Florida, state revenues were running around $365 million ahead of plan as 2018 drew to a close.

Cuomo blames the new federal tax law that took effect in 2018 for Albany’s budget woes, and for the exodus of high-asset, high-income New Yorkers to tax-friendly places like Florida. In a televised presentation, the governor recently said the new federal tax regime “encourages high-income New Yorkers to move to other states and if even a small number of high-income taxpayers leave the state, it would harm state revenues and impact critical funding for education, health care, infrastructure and the middle-class tax cuts.” Cuomo further accused Republicans in Washington of deliberately targeting New York and other Democrat-controlled states for budgetary persecution with the cap on deductions for state and local taxes. “The federal administration’s SALT policy is an economic civil war that helps red states at the expense of blue states,” Cuomo said, “and we are now seeing the potentially devastating effect of it in the form of significantly lower tax receipts.”

I would remind the governor that the new tax law was only introduced and passed in the closing weeks of 2017. New York was losing people like me – entrepreneurs who create enterprises that put people to work and who want to keep businesses in their family – for many years before that.

My own move was complete well before the new tax law was passed. I disposed of my New York property, canceled the registration of my New York CPA license (I am licensed in Florida) and moved my business entirely out of the state, partly to avoid New York’s inhospitable tax climate but even more to thwart its draconian, capricious, heads-we-win-tails-you-lose approach to tax enforcement. Give New York any excuse at all to argue that you are domiciled there, and the state will claim a share of all your income, no matter where you actually reside or where you earn your living. And then, if you fall off the state’s estate tax exemption “cliff,” it will claim another large share of your assets (liquid or otherwise) when you die.

This is not to say that actually living in New York is any financial picnic. Property taxes as a percentage of a home’s actual value are two to three times as high in the New York City suburbs as in most of Florida. Electricity costs more than twice as much, too. And thanks in large measure to Cuomo’s own policies to limit the production and transmission of natural gas, Con Edison has recently announced a moratorium on new gas hookups in its Westchester County service area.

For all the money they pay in taxes, the public services New Yorkers receive generally range from mediocre (the highways) to miserable (the New York City subways). An annual household income of $200,000 buys a very nice lifestyle in Atlanta or Austin or Orlando. It isn’t poverty in New York, but it does not go nearly as far, either. So of course people in that income bracket and above – the brackets that Cuomo counts on to fund New York’s bloated state and local governments – are looking elsewhere.

I am not the only one in my small company to leave the Northeast for warmer climes. I count nine other Palisades Hudson professionals who have relocated over the years from the Northeast to positions south of the Mason-Dixon Line. The number who have moved from the South to our former locations in Westchester or our current regional office in Connecticut: zero.

Notwithstanding Cuomo’s red herring about an attack on Democrats, most New Yorkers will pay lower federal taxes under the new tax law. Using Internal Revenue Service data from 2014, the Federal Reserve Bank of St. Louis found that fewer than 40 percent of New Yorkers claimed itemized deductions where the new limitation would apply, even before the new law greatly increased the attractiveness of the standard deduction as an alternative. And although many people don’t realize it, the benefit of the old deduction was often curtailed because of the Alternative Minimum Tax, which disallows deductions for state and local taxes.

Even high-income New Yorkers who itemize will benefit from other features of the new tax law, such as lower overall rates and higher income break points between tax brackets, as well as the new deduction for qualified income from pass-through businesses.

If New York’s high taxes and aggressive enforcement are driving people away, it isn’t because federal tax benefits are too small; it is because the cost of government at all levels in New York is too big. Indirect costs such as the exorbitant local utility rates – what I call the Con Ed tax – are another factor, wholly apart from federal tax policy.

New Yorkers are entitled to whatever government they want and are willing to support. It just is not reasonable to expect the rest of taxpaying America to help pick up the tab without limit.

Cuomo and his fellow Northeast governors don’t like seeing their high-dollar cash cows wander off to greener pastures in Florida and other states. I get that. They want to restore a federal tax break that acted as an indirect but obvious subsidy for their expensive, inefficient, unionized (and pro-Democrat) public payrolls and spendthrift habits. That is understandable too.

While the new tax law may have catalyzed some population movement, the trends existed long before the law was passed, and a good deal of that movement would likely have happened anyway. The camel was already staggering under a load it could not carry forever.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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