There’s a growing debate over how higher taxes on the wealthy affect interstate migration trends — and some experts say millionaire tax flight is underway.
“Taxes are an important part of this puzzle,” said Jared Walczak, vice president of state projects for the Tax Foundation, speaking at CNBC’s Financial Advisor Summit on Wednesday.
“There’s more movement among the highest-income and highest-net-worth individuals than there is among the lowest,” Walczak said. He said studies show there’s an out-migration when states make these changes.
“Tax policy is having an impact,” said Bess Freedman, CEO of Brown Harris Stevens Residential Sales, who also spoke on CNBC’s panel. But it’s not “earth-shaking” or the “end of the world for New York,” a city that still has more than 350,000 millionaires, she said.
“People still want to be a part of New York and are willing to invest,” she added.
Other research suggests state taxes may have a minimal impact on migration trends, according to Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities.
Top earners are more likely to leave certain high-tax states, but there’s no evidence to suggest a “mass exodus” from places like New York, said Mazerov, who released a report on this topic in August 2023.
Tax changes on the horizon
Meanwhile, several tax law changes enacted by former President Donald Trump will sunset after 2025 without changes from Congress.
The Tax Cuts and Jobs Act, or TCJA, of 2017 included lower federal tax brackets, doubled standard deductions, included higher gift and estate tax exemptions and reduced the number of higher earners subject to the alternative minimum tax, among other provisions.
TCJA also added a temporary $10,000 cap on the deduction for state and local taxes, known as SALT, which has been a key issue in high-tax states such as California, New Jersey and New York. The limit was designed to raise tax revenue for other TCJA provisions.
Walczak said the $10,000 SALT deduction limit has contributed to migration. “It’s worth a couple of percentage points in a state like New York,” he said.
However, with control of the White House and Congress pending, it’s difficult to predict whether the SALT cap will lift after 2025, especially amid the federal budget deficit.