Millionaires fleeing New York’s tax crackdown south

New York’s elected officials struggle to portray their catastrophic population losses as something that can be easily reversed with just a few changes to the business environment, more federal aid, and more spending from Albany and City Hall.

Sorry, the municipal bond market seems to have a different opinion.

For years, city and state bureaucrats had some decent weapons to gloss over various tax issues. The New York financial markets and real estate companies, which generate some of the highest incomes and tax revenues in the country, could be counted on to fund the inflation that came out of Albany and City Hall.

Despite constant brawls from class warfare-obsessed progressives, these much-maligned millionaires and billionaires generate most of the city’s and state’s tax revenue. Rich people were willing to pay high taxes and subsidize that generosity because the Big Apple was still the cultural center of the world and because the streets remained safe under Mayors Rudy Giuliani and Mike Bloomberg.

It didn’t hurt that wealthy New Yorkers could also deduct much of their city and state tax payments from their federal taxes. They got another tax break by investing their wealth in tax-exempt municipal bonds.

Then, not once but twice, voters elected Comrade Bill de Blasio mayor, who took spending to another level. He also threw the city into chaos, freeing criminals and beating up the police before it became fashionable among the utopian left.

And in 2018, President Trump capped the Blue State’s socialism subsidy, known as SALT, at $10,000 per year — the state and local tax deduction on federal tax returns. Suddenly, many of the wealthy who stayed in the city, who ate the living expenses, who paid most of the taxes, and who financed the debt, began disappearing.

Wall Street giants began opening offices in places like Florida and Texas with no state income taxes, and the rush for exits continued. Census figures through 2019 show that millionaires have been leaving New York at an alarming rate.

As EJ McMahon of the Manhattan Institute recently wrote, “In 2019, the number of New York City taxpayers with adjusted gross income over $1 million fell to 55,100 from 57,210 in 2018, according to data just released from the Internal Revenue Service. That 3.7% drop even came as the number of millionaires in the country surged from 541,410 to 554,340, a 2.4% increase.”

A "Welcome to Florida" Sign at the state border.
Some Wall Street giants are now in the Sunshine State.

And that was before the pandemic.

Who made it worse?

Of course, de Blasio made things worse during COVID. He crippled the city and turned Manhattan into a playground for criminals and the insanely homeless, from which it has yet to recover under new Mayor Eric Adams. That prompted many more wealthy New Yorkers to seek shelter outside of the state.

But bean counters like Treasury Secretary Robert Mujica still try to paint what’s happening before our eyes as a junkie for the compliant, left-leaning media. The rich don’t leave because of high taxes or high crime, as if the census numbers lie.

But there’s one place where reality can’t be twisted so easily, and that’s in the municipal bond market.

Former Mayor Bill de Blasio
Former Mayor Bill de Blasio’s crime policies have left NYC’s Adams regime with a hard hole to dig out of.
Eric Pendzich/Shutterstock

A little background on Munis: They often don’t follow the same rules as other types of debt, which rise and fall based on general economic trends and interest rates.

Because municipal bonds are a tax haven. Even when interest rates are rising and other bonds are falling, rich people in high-tax areas (e.g., New York) can often be counted on to continue buying government and federal bonds.

That attraction is waning now, I’m told by traders and investment bankers who specialize in New York State and City bonds. The most logical explanation isn’t simply oversupply or higher interest rates. Millionaires’ appetites may still be there: city and state taxes continue to hit the rich harder than ever.

Also, there are no immediate worries of budget tightening and bond rating downgrades dragging down prices as both city and state coffers are stuffed with federal COVID relief funds.

Less need for NY Munis

The only explanation, market experts tell me, is a growing number of wealthy people who no longer need to seek out New York as a tax haven – because they now live in Florida.

The Bear Traps Report, a research platform, crunched some numbers for me and came to the following conclusion: Florida Munis yields have often been higher than New York’s because of greater demand for Empire State debt and greater demand for taxes was less. free bonds in a low-tax state like Florida.

That began to shift over the years, but most noticeably in early February of this year. Now, bond yields in New York are higher than those in Florida, while the tax base for wealthy Empire State residents has thinned significantly.

Miami Beach, Florida, residential towers on January 20, 2022.
Florida offers lower taxes for high earners.

As one bond trader told me: “The ammunition market is pretty tough right now; There is a sell-off in bonds due to higher interest rates, but demand from the 3 million rich who have moved to Florida has definitely dropped.”

The problem, if it persists, does not bode well for Mayor Adams or Gov. Hochul, who have so far shown little inclination to adequately address the outflow of the millionaire population.

Both talk a good game of crime, but neither has completely undone the defund-the-police policies of their predecessors. They also talk a good game about keeping rich people here, but continue to tax them out of the state.

If history is any guide (see the financial crisis of the 1970s), it will not end well. Once the federal COVID relief funds dry up, Hochul and Adams will face a shrinking tax base, much higher debt service costs and major budgetary woes — exactly what markets are foreshadowing. Politicians may speculate, but municipal bond prices don’t lie. Millionaires fleeing New York’s tax crackdown south


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