Will SALT cap ruling accelerate high-tax state exodus?
A Manhattan judge dealt a blow to multiple high-tax states this week, including New York, which could drive even more taxpayers to seek to establish their domicile elsewhere, some experts say.
Four blue states sought to challenge the $10,000 cap on state and local tax deductions implemented as part of the Tax Cuts and Jobs Act – but failed to convince the judge that the measure was in excess of federal taxation authority.
“I think people who now saw the courts weigh in … if they were on the fence, they’re now more inclined to make a move,” Timothy Speiss, co-leader of EisnerAmper’s Personal Wealth Advisory Group, told FOX Business.
The exodus is noticeable: Florida, for example, received more movers than any other state last year, New York's outflows to the Sunshine State were the highest – 63,772 people. New York had the third-largest outflows of any state, with 452,580 people moving out within the past year.
Speiss added that the trend will have a detrimental effect on the economies of states that are losing residents – like New York and New Jersey – with the potential to impact everything from housing markets to construction industries to funding for schools.
“This has some pretty broad implications,” Speiss said.
However, the bad news could extend beyond individuals deciding to abandon their homes for lower-tax states.
“I think it could have problematic effects not only because of outgoing people, but [the ruling could also be] problematic in terms of recruiting people to come into high-tax states,” Tom Corrie, principal and director of Friedman LLP’s state and local tax group, told FOX Business.
For someone considering accepting a position in a state like New York, Corrie noted that it draws attention to the fact that people will be subject to the high taxes (property, sales and otherwise), without much opportunity for relief.
“States are rightly worried that it can have effects on their economies,” Corrie said, noting that with people leaving – and others rethinking moving in – economies can stagnate.
New York Gov. Andrew Cuomo has been outspoken about the effects of the SALT cap on the New York economy. Cuomo has said he expects the cap on state and local tax deductions to have a negative impact on the state’s population – and tax receipts. He blamed a $2.3 billion budget deficit on the new tax law, calling the state’s financial situation “as serious as a heart attack” as wealthy residents leave.
However, whether states like New York will enact any reforms of their own to combat the problem remains to be seen.
“Everybody wants their cake and [to] eat it, too, so they’re not going to address the problem and as a result you’re going to continue to see more migration into Texas, Florida, Tennessee, Washington,” former Heinz CEO Bill Johnson told FOX Business Neil Cavuto on Monday. “For the life of me I can’t figure out why this is such a difficult concept to grasp.”
On the other hand, some financial experts say Monday’s ruling is unlikely to change moving plans since people have already seen how the tax law will affect their finances.
Joe Pizzimenti, a tax director specializing in state and local tax services at Margolin, Winer & Evens, told FOX Business that most people who were considering changing domiciles were likely getting excellent advice from professionals and probably had already made a decision.
Bill Smith, managing director of CBIZ MHM’s National Tax Office, agreed, saying he thinks most people would assume the law wouldn’t be changed.
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A judge dismissed the lawsuit filed in July 2018 by New York, New Jersey, Maryland and Connecticut on Monday, finding the implementation of the $10,000 cap on state and local tax deductions did not exceed Congress’ taxation authority because it was neither “an unconstitutional assault on states’ sovereign choices” nor unconstitutionally coercive.
Cuomo along with New York’s Attorney General suggested that the state may appeal the ruling – an outcome multiple sources told FOX Business was likely.