STUMP » Articles » Taxing Tuesday: Highly Taxed People Running Away » 8 May 2018, 12:15

There’s been a theme lately: the increasing desperation of high tax states to hang onto taxpayers.

Wall Street Journal: ‘My Clients Are Fleeing NJ Like It’s on Fire’

That headline arrives via email from a money manager in northern New Jersey. The Garden State already has the third largest overall tax burden and the country’s highest property tax collections per capita. Now that federal reform has limited the deduction for state and local taxes, the price of government is surging again among high-income earners in New Jersey and other blue states. Taxpayers are searching for the exits.

In the financial industry of course it’s not just the clients who are looking for greener pastures. One hedge fund manager moving his office to a southern state reports that his new home on a golf course will be more than double the size of his house in Chatham, N.J. while generating just one third of the current property tax bill.

Others are staying out of necessity, but that doesn’t mean they want to bet on a Jersey comeback. “The apartment market in New Jersey is booming because nobody wants to own here. As soon as people are not tied to the area for business reasons, they leave,” says Jeffrey Sica, founder of Circle Squared, an alternative investments firm. “We structure real estate deals for family offices and high-net-worth individuals and at a record pace those family offices and individuals are leaving the TriState for lower-tax states. Probably a dozen this year at least,” he writes via email.

….
The Tax Foundation ranks New Jersey dead last among the 50 states for its business tax climate. So naturally new Governor Phil Murphy is proposing an even larger tax burden. A little more than 100 days into his term, Mr. Murphy seems determined to make New Jersey residents miss Chris Christie.

That’s quite a low bar to limbo under.

Now, in some of the cases, people need to beware that the taxpayers will start voting for high-taxing politicians in their new homes. Well, it won’t start out as high taxing, but as high promising.

Please, y’all, remember why you left, and don’t start fouling up where you move to.

NEW YORK TRIES TO BE CLEVER

New York Found a Fix for Some Hit by Tax Law. Employers Are Skeptical

Companies worry about costs and complexity of payroll levy that would skirt federal cap on state-tax deductions

New York state lawmakers found a clever way for employers to help their workers circumvent a new $10,000 federal cap on state and local tax deductions. Employers, however, so far aren’t crazy about it.

The idea, which became law last month, creates a new optional payroll tax that shifts the state and local tax deduction from individuals who can no longer fully take it to businesses that can. Employers are worried about compliance costs, interactions with union contracts, complexity across state lines and the difficulty of explaining to workers how a plan that might lead to smaller pay raises still puts more money in their pockets.

…..
The Wall Street Journal asked the 10 largest private employers in the state and in New York City, along with all Fortune 100 companies based in New York state, whether they would opt for the new payroll tax. None that responded said they would do so, though they have until Dec. 1 to make a decision for 2019.

The state and New York City are still determining whether to use the new payroll tax for their own employees.

Oh, that one will be beautiful.

The new payroll tax is part of the state’s response to last year’s federal tax law, which capped at $10,000 the amount of state and local tax payments that individuals could deduct from income on their federal tax forms.

In part because of that new cap, 8.3% of New York households will get a federal tax increase in 2018 averaging $3,340, compared with 6.3% nationally, according to the Tax Policy Center, a Washington group led by an Obama administration official.

….
The optional payroll tax starts at 1.5% of wages above $40,000 in 2019 and rises to 5% by 2021, below the state’s top individual income-tax rate. The phase-in is designed to give employers and workers time to adapt without sudden cuts in wages. At the 5% rate, a single employee making about $100,000 would save more than $700, said Daniel Hemel, a University of Chicago law professor who helped develop and promote the payroll tax idea. Today, that employee pays at least $2,850 in New York state taxes. The employee would be better off if his employer pays the $2,850 state tax and his federal income and payroll taxes are based on a $97,000 salary.

The Internal Revenue Service could challenge the novel approach, though many legal experts believe it complies with federal law.

Even if the IRS doesn’t challenge it, many businesses are wary.

…..
Pretax income, what people think of as their salary, is important. It determines future Social Security benefits and can affect 401(k) matching contributions, employees’ share of health-care premiums and the starting point for job negotiations.

The other item here, of course, is that this doesn’t cover the property tax portion of local taxes… I mean, my own property taxes alone go over the $10K cap.

But they’ve got that fake charity idea for that bit (which may not work).

Smaller businesses full of tax-savvy, high-income professionals might be more likely to participate, because they’re less likely to encounter the same challenges with employee communications and parity with employees in other states. Employers’ choices over the next few years will determine whether the new state law benefits just the best-off New Yorkers or a larger group.

Yes, what about those smaller businesses that are essentially one or two high-income professionals (aka lawyers or tax accountants or some such) – they’ll pay payroll taxes on themselves….

…yeah, that sound like a sweet set-up.

MARCO RUBIO GETS CAUGHT IN TAX POLITICS

So Marco Rubio was quoted in the Economist:

The watered-down version they accepted, as the price of Mr Rubio’s support for the bill, excluded the poorest families. “There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,” he says. “In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.”

And then some Republicans got annoyed:

The GOP tax law dramatically reduced taxes on American businesses, cutting the corporate tax rate from 35 percent to 21 percent. The White House said throughout the tax debate that the law’s corporate cuts would increase wages for the average American worker by $4,000, a claim made by White House spokeswoman Sarah Huckabee Sanders and Kevin Hassett, chairman of the Council of Economic Advisers.

Nonpartisan experts were skeptical about the claim, and independent analyses say the bulk of the law’s tax cuts would go to the wealthy.

I agree. Most of the cuts go to high income people (not exactly the same as “the wealthy”, but I don’t expect wordmongers to understand the difference)…because they’re the ones who were paying the most in taxes (and will still be the ones paying the most in taxes).

Most of the tax increases will also go to high income people, in states like New York and Connecticut.

But conservative organizations were quick to condemn Rubio for appearing to take the Democratic line on tax reform.

“It’s disappointing to see Marco Rubio echo some of the false rhetoric of tax reform opponents, and we hope he clarifies his remarks,” said Brent Gardner, chief government affairs officer for Americans for Prosperity, the conservative political advocacy group tied to the billionaire industrialists Charles and David Koch. “There’s no doubt that the full potential of tax reform will be realized over the long-term, but there’s also no denying the positive impact it’s already having on American workers, businesses and families across the country.”

All I can say is that a lot of people I know have been on job interviews of late. Hmmmmm.

he wrote this for the National Review:

Two Cheers for Corporate Tax Cuts

On the whole, the tax cut bill helps workers. It’s just not massive tax cuts to multinational corporations that do it.
Overall, the Republican tax-cut bill has been good for Americans. That is why I voted for it. But it could have been even better for American workers and their families.

The central reason why it wasn’t is that in the new economy, it isn’t enough to just cut taxes; you have to cut the right ones.

During the tax-cut debate, when the rival priorities of committing fully to a 20 percent corporate income-tax rate or allowing full and immediate expensing for all business investments emerged, it was the former that won out. This choice may seem small, but it speaks volumes about where supply-side priorities were, and where they could have been.

Full expensing is a tax cut for businesses planning to make new investments in the United States, while a corporate income-tax rate cut is an across-the-board windfall for capital, no matter its use. By allowing businesses to deduct their capital investments, full expensing better increases the value of investments that are tied to American labor, while a corporate income-tax rate cut increases the return to capital regardless of its country of origin or whether it will create American jobs.

Okay, I’m a policy wonk, and even I’m rolling my eyes at this point.

There’s more there, but I just can’t begin to care. I think the corporate tax cut means fairly little in terms of U.S. revenue.

CORPORATE TAX TAKE

Would you like to see what the federal income tax take is, individual vs. corporate?

Let’s check it:

Tax Policy Center: What are the sources of revenue for the federal government?

Roughly 80 percent comes from the individual income tax and the payroll taxes that fund social insurance programs (figure 1). Another 9 percent comes from the corporate income tax, and the rest is from a mix of sources.

The vast majority of the take is from taxes on individuals, not corporations. That’s before the corporate tax cut.

Thing is, corporations do all sorts of things, including losing money — sometimes an individual will have “negative income”, but generally individuals aren’t having tax-deductible expenditures in the ways corporations do (such as: paying employees, paying for business supplies, etc.)

If you think the U.S. government can simply be cleverer than corporations and start taxing them for stuff that is now deductible – like, say, employee salaries – you are just plain nuts.

I decided to grab the receipts by source from the historical tables, because percentages are all very well… let’s check the actual total amount (this is Table 2.1. Because I’m annoyed that they changed when the fiscal year ran in 1976, I’m not dealing with that transition and just starting the historical run from 1980.

Here’s a graph of the take:

That’s nominal billions of dollars in the vertical axis. Just touching on $1.6 trillion for individual income taxes for fiscal year 2017.

Payroll taxes (and a few other things, but they’re teeny in relation to FICA) were about $1.2 trillion for fiscal year 2017.

It’s good to keep this in mind as people think through tax policy. Most of the tax revenue comes from individuals, not corporations. Very little comes from excise taxes, which used to be the only federal taxes there were.

LEFTOVER TAX LINKS

• Millionaire Taxes Don’t Work | National Review
• Should the U.S. Extend Individual Tax Breaks Beyond 2025? – Knowledge@Wharton
• Seattle Proposes a New Tax on Jobs – Tax Foundation