New York’s wealthy warn of a tax exodus after Mamdani’s win – but the data says otherwise
In the wake of Mayor-elect Zohran Mamdani’s proposal to increase New York City’s income tax on its wealthiest residents from 3.9% to 5.9%, a wave of anxiety has rippled through the affluent community. This potential tax hike, when combined with New York State’s top income tax rate of 10.9%, would solidify the city’s status as the most heavily taxed locale for high earners in the United States. Prominent figures, including hedge fund billionaire Bill Ackman, have voiced concerns that both businesses and wealthy individuals are already making plans to exit the city. New York Governor Kathy Hochul has also expressed her opposition to the tax increase, warning that such measures could drive the affluent away from the state. This sentiment was echoed by former Governor Andrew Cuomo, who humorously suggested that he might even relocate to Florida if Mamdani’s tax plans come to fruition.
However, research suggests that the fear of a mass exodus of millionaires due to tax increases may be overstated. Studies examining the migration patterns of high earners in states like New Jersey and California reveal that millionaires have relatively low migration rates, with only about 2.4% relocating each year. The majority of these moves are not primarily motivated by tax considerations. For instance, while Florida attracts many New Yorkers, the wealthiest individuals often choose to move to states like Connecticut and New Jersey, which also impose millionaire taxes. Furthermore, the COVID-19 pandemic temporarily disrupted social networks and allowed for greater mobility among affluent individuals, leading to a brief spike in relocations to lower-tax states. However, as social life and economic stability returned, migration patterns reverted to pre-pandemic norms, indicating that the bonds formed in high-tax states often outweigh the allure of lower taxes elsewhere.
The implications of these findings suggest that rather than focusing solely on tax cuts to attract high-income earners, cities and states should prioritize creating environments that appeal to younger professionals. These individuals, often unencumbered by established social and economic ties, are more mobile and in search of opportunities to build their careers. By investing in quality services, affordable living, and strong community networks, cities can cultivate a pipeline of future top earners who are likely to embrace higher taxes when their earning potential increases. Mamdani’s plan, in this context, could be seen as a strategic move to support the infrastructure and quality of life that will retain and attract the next generation of successful individuals in New York City.
Wealthy New Yorkers have threatened to leave the city if Mayor-elect Zohran Mamdani follows through on his promise to raise taxes on the rich.
Charly Triballeau/AFP via Getty Images
New York’s mayor-elect, Zohran Mamdani, campaigned on a promise
to raise the city’s income tax
on its richest residents from 3.9% to 5.9%. Combined with
the state income tax
, which is 10.9% for the top bracket, the increase would cement the city’s position as having the highest taxes on top earners in the country.
It set off
a chorus
of warnings
about the tax flight
of the city’s wealthiest residents.
Hedge fund billionaire Bill Ackman claimed that both the city’s businesses
and wealthy residents
“have already started making arrangements for the exits.”
New York Gov. Kathy Hochul
echoed the concern
, opposing the proposal “because we cannot have them leave the state.” Before the election, Mamdani’s opponent, former New York governor Andrew Cuomo,
joked that if Mamdani won
, “even I will move to Florida.”
I research whether high earners actually move when their taxes go up
. My colleagues and I have analyzed millionaire taxes in New Jersey and California, the migration of Forbes billionaires globally and decades of IRS data tracing where Americans with million-dollar incomes live.
Top earners are often thought of as “
mobile millionaires
” who are ever searching for lower-tax places to live. In reality, they’re often reluctant to leave the places where they built their careers and raised their families.
At the same time, there are grains of truth in the tax migration arguments, so it’s important to carefully parse the evidence.
A small fraction of a small fraction
The first fact is simple: Millionaires have low migration rates.
Mobility in America is highest among people who are still searching for their economic place in life. Workers who earn the lowest wages move across state lines at relatively high rates, about 4.5% per year, often in search of
more affordable housing
.
People making $1 million-plus a year move only half as often
: Just 2.4% of them pack up each year.
When millionaires do move, it rarely appears to be for tax reasons. For example,
Florida is the top destination
for New York movers in general. But among the richest 1% of New Yorkers, the top destination is
Connecticut, followed by New Jersey and California
, all three of which levy a millionaire tax.
Some millionaires certainly do favor lower-tax destinations. But many moves to low-tax states are offset by moves in the opposite direction to higher-tax states, and many other moves take place between states that have the same tax rate.
Overall, only about 15% of millionaires who move end up with a lower tax bill. That shows the rich are willing and able to move for tax reasons. But because only about 2.4% of millionaires move each year – and only a fraction of those moves reduce their taxes – overall tax migration ends up being a small fraction of a small fraction. Not never, but not often.
Some benefits don’t have a dollar sign
Migration is mostly a young person’s game.
The most mobile Americans are recent college graduates who are brimming with potential, searching for work and unburdened by major responsibilities.
Their rate of migration from one state to another is over 12%
, more than four times the rate of millionaires.
The typical adult mover
is about 30 years old
, while the highest income earners are typically about 50. People choose where to build their careers and families decades before they reach their peak earnings phase.
By the time someone earns enough to be taxed in the highest brackets, they’re usually late into their careers. They are almost always married, often have children at home, own their homes and, in many cases, own a business. Their social lives and their economic success are linked to local networks of colleagues, clients and connections built up over a long career. Moving away from those networks means giving up a great deal of social capital and starting over somewhere new.
Top earners know that some states have lower taxes, but for most, tax flight is simply a bad deal. The social and economic costs of uprooting are bigger than the tax savings.
When your social world collapses
Two recent events showed why the rich generally stay where they are – and what it takes to move them.
The first was the
Tax Cuts and Jobs Act
, which President Donald Trump signed into law in late 2017. The tax reform package capped the federal deduction for state and local taxes and raised taxes on high earners in states like New York, New Jersey and California. In a Wall Street Journal op-ed titled “
So Long, California. Sayonara, New York
,” economists Arthur Laffer and Stephen Moore predicted that 800,000 people a year would flee those states.
They didn’t.
A colleague and I studied every millionaire tax return
in the country for two years before and after the reform. Nothing happened. There was no increase in migration out of the states where tax burdens rose. The predicted exodus simply did not occur.
We were about to wrap up the study and call it case closed. Then something unexpected did happen: In early 2020,
millionaires began leaving high-tax states in large numbers
. Low-tax states saw no comparable outflows. The pattern matched those tax-flight predictions from just a few years earlier.
It was the COVID-19 pandemic, and it brought a profound shock to the social lives of city residents.
Offices emptied out, with entry swipes in major cities
dropping by nearly 90%
. Time spent at work fell sharply, local amenities were shuttered, and time spent alone grew as in-person contact became a health risk. K–12 schools closed, disrupting children’s relationships with teachers and classmates.
The COVID-19 pandemic briefly turned downtowns into ghost towns.
Spencer Platt/Getty Images
For many households, this was also a strange form of freedom, and a chance to rethink the geography of work and life, especially for top earners who could work remotely from anywhere. Disconnected from the bonds of place,
top earners moved and clearly favored low-tax destinations
.
The lesson is that social lives and economic policies are deeply intertwined. The 2017 tax reform had no effect on migration because the social cost of moving is high – especially for people at the peak of their careers who are enjoying the many social benefits of economic success. As long as those connections to others are strong, they outweigh the appeal of moving to lower-tax states.
When the pandemic broke apart so much of social life, the ledger shifted. If your office, school, friendships and daily routines no longer anchor you in place, what is keeping you in a high-tax place?
But by early 2023, as social and economic life returned to normal, we found that millionaire migration patterns mostly
reverted to their prepandemic baselines
.
In other words, the surge in tax flight was temporary.
If you want the rich, appeal to the young
There is a big lesson here for state and city policies.
Every place wants to attract high-income earners and the spending power and tax dollars that accompany their salaries. Many policymakers think that tax cuts will lure them in, but this is mostly a fool’s errand. In normal times, the rich are deeply rooted and not movable.
The real opportunity lies in attracting and retaining the next generation of top earners – young people who are unattached to place and looking for opportunities to build their careers and their lives. Places that draw young professionals build the pipeline of future top earners.
Those early-career folks are mobile, but they are not thinking about the top tax rate. Their salaries are low. They are trying to find good jobs, pay the rent, form relationships and start families. They hope to be successful enough to one day be paying Mamdani’s millionaire tax. For the time being, though, they need the basic costs of living to be manageable. Soon they will need affordable child care and good public schools for their kids.
If the city helps them that far along,
many of them
would
gladly pay a millionaire tax
when and if
the time comes
. In this light, the Mamdani plan is simply practical: Higher taxes at the top support the services and quality of life that keep the next generation in the city.
Cristobal Young received funding from the Russell Sage Foundation and the Washington Center for Equitable Growth in support of this research project.
