NY Seeing Massive Tax Revenue Drop As Resident Flee State

For a while now, New York has been witnessing a slow exodus of its citizens to other states. However, the pandemic brought about a new dynamic: Compared to those who stayed, those who made the decision to leave were among the highest earners.

The Internal Revenue Service released data for 2020–21 in late April that showed these intriguing trends. While the adjusted gross incomes were attributed to the 2020 tax year, this information categorized taxpayers based on their movement and place of residence between filing taxes in 2020 and 2021. There have been many changes since the postponed income tax filing deadline of May 17, 2021, which was two years ago. However, New York’s population decline has continued. A state that relies on high earners for a sizable portion of its income tax revenue may face disaster if this trend continues, even if it becomes less pronounced.

Interestingly, the mass exodus of wealthy taxpayers during the pandemic did not result in the expected financial chaos. The price increase of assets like stocks and real estate in 2020 and 2021 was the main cause of this. As one of the richest states, New York witnessed an increase in income for many of its citizens that was correlated with these asset prices. As a result, while the percentage of taxpayers making over $1 million who left the state increased, the percentage of those who stayed increased.

However, the main reason for the current debt-ceiling impasse in Washington is the significant drop in income tax revenue across the country as the market tide has subsided. The rapid decline in New York’s personal income tax receipts—which are currently lower than they were in 2019—is an indication of the exodus of wealthy taxpayers.

After accounting for the recent high rates of inflation, it is startlingly clear how serious New York’s financial situation is. Federal individual income tax receipts are 15% higher in real terms compared to pre-pandemic levels despite a significant decline since last summer. In the meantime, personal income tax revenue in New York has fallen by almost 17%.

Why are people leaving New York, then? The causes were fairly obvious in 2020: New York City became a focal point for the pandemic, and the state’s cautious response to COVID-19 led to significant job losses and a sluggish recovery. It is unsurprising that New Yorkers are moving away, given the state’s extremely high taxes and the high cost of living, particularly in urban areas.

According to recent research by Stanford Graduate School of Business Joshua Rauh, taxes may have some impact on interstate migration. The majority of those leaving states like New York and California, though, have typically been people with low to middle incomes, for whom the high cost of living is probably a bigger factor than tax rates.

In New York, those who could relocate quickly and work remotely were primarily responsible for the first wave of the pandemic’s migration. According to estimates from the Census Bureau, this pattern has changed, with wealthy Manhattan experiencing an increase in population from mid-2021 to mid-2022. In contrast, The Bronx, the state’s poorest county, has experienced the highest percentage of population loss. This complex mix of population changes poses a short-term risk to the state’s ability to manage its financial obligations.

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