“This is the flip side [of] tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?” Gov. Andrew Cuomo asked this month, and it’s a vexing question.
When Congress enacted President Trump’s tax reform a little over a year ago, many economists, ourselves included, predicted that the lower tax rates would supercharge the national economy but could cause big financial problems for the tri-state region of New York, New Jersey and Connecticut.
The cap on the state and local tax deductions at $10,000 raised the highest effective state tax rates to 12.7 percent from 7.7 percent in New York City, to more than 10 percent from 6.5 percent in New Jersey, and to 7 percent from 4.2 percent in Connecticut.
The danger was clear: Unless these states cut their taxes sharply, they would witness an exodus of wealthy residents, who would migrate to low-tax states like Florida, Tennessee and Texas, taking their money with them and dramatically diminishing the tax base in their home states.
Cuomo is now calling the SALT change “diabolical.” But Albany sat back and did nothing. Ditto for legislators in Hartford. And in Trenton, they raised taxes.
The exodus may already be underway.