As New York City prepares for a shift in leadership, the proposed tax policy changes by mayor-elect Zohran Mamdani are stirring debates across the financial landscape. Mamdani’s plan to increase the city’s income tax on the wealthiest residents from 3.9% to 5.9% has positioned the city to potentially have the highest taxes on top earners nationwide. This increase, when combined with the state income tax of 10.9% for the top bracket, has sparked significant concern among affluent New Yorkers.
The prospect of higher taxes has led to a chorus of warnings from various quarters about a potential exodus of the city’s wealthiest residents.
Hedge fund billionaire Bill Ackman has highlighted that many businesses and affluent individuals are already contemplating leaving the city. New York Gov. Kathy Hochul has also voiced opposition to the proposal, stating, “we cannot have them leave the state.” Meanwhile, Mamdani’s opponent, former New York governor Andrew Cuomo, humorously remarked that he might consider moving to Florida if Mamdani’s policies were enacted.
Despite these concerns, research into the migration patterns of high earners suggests a more nuanced reality. Studies on millionaire taxes in states like New Jersey and California, alongside data from the IRS and global billionaire migrations, reveal that while the affluent are often perceived as highly mobile, they are generally reluctant to leave established personal and professional networks.
A Look at Migration Patterns
It’s a common belief that millionaires frequently move to avoid higher taxes, yet data shows that their migration rates are quite low. In contrast to low-income earners who move at a rate of 4.5% annually, seeking more affordable living conditions, only 2.4% of millionaires relocate each year.
When they do move, tax considerations are rarely the primary motivator. While Florida is a popular destination for New Yorkers, the wealthiest tend to move to states like Connecticut, New Jersey, and California—states that also impose taxes on millionaires.
About 15% of migrating millionaires find lower taxes, indicating that tax savings can influence decisions. However, since only a small percentage of millionaires move each year, the overall impact of tax migration remains minimal.
The Non-Monetary Factors
Migration trends show that younger individuals are the most mobile, with recent college graduates moving at a rate of over 12%. In contrast, top earners, typically in their 50s, are more settled due to family ties and career commitments.
These established professionals often prioritize their existing social and business networks over potential tax savings. Moving would mean losing substantial social capital and starting anew, which many find undesirable.
Impact of Major Events on Migration
The Tax Cuts and Jobs Act of 2017, which limited federal deductions for state and local taxes, was expected to trigger a mass exodus from high-tax states. However, subsequent research indicated no significant increase in migration following the reform.
Conversely, the COVID-19 pandemic did lead to an increase in relocations, as remote work untethered many from their urban lifestyles, prompting a move towards low-tax states. Yet, this trend was short-lived, and by early 2023, migration rates had mostly returned to pre-pandemic norms.
Strategies for Attracting Future Earners
For policymakers, the key takeaway is that attracting the next generation of high earners requires more than just tax incentives. Young professionals seek affordable living, quality educational opportunities, and a vibrant community. By fostering these conditions, cities can lay the groundwork for retaining future top earners who may eventually contribute to the tax base through higher earnings.
