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As some of the country’s high-tax states, like New York and New Jersey, contend with major consequences inflicted by severe coronavirus outbreaks – the states could be dealing with a second wave of economic fallout as experts predict more wealthy taxpayers may choose to leave.
Governors from these high-tax states have already begun expressing concern about the $10,000 SALT cap, which has driven out many high net worth taxpayers and their tax dollars. Now – facing coronavirus-inflicted fiscal challenges – potential SALT-related revenue losses could be more devastating.
The National Governors Association has warned of “drastic revenue shortfalls” as states extend tax filing deadlines to July, millions of Americans lose their jobs affecting personal income tax generation and stay-at-home orders depress sales tax collections.
New York Gov. Andrew Cuomo has said his state, which has been by far the hardest hit by the domestic outbreak, is facing a $10 billion to $15 billion coronavirus-related deficit.
New York’s fiscal problems would be exacerbated if wealthy taxpayers decided not to return to their homes in the state in the aftermath of the coronavirus crisis – not just for tax reasons, but now with the additional motivation from health risks.
“Because of a lot of the health concerns, people could also be thinking about moving,” Timothy Noonan, state and local tax expert and partner at Hodgson Russ, told FOX Business. “[They may] flood out of these densely-populated, high-tax states.”
Last year, Cuomo credited the SALT cap for contributing to a $2.3 billion budget deficit in the state, as wealthy taxpayers left.
The Empire State lost $9.6 billion in 2018 alone as wealthy individuals and businesses moved out.
Noonan has personally received multiple inquiries from clients about changing their domicile from New York to Florida during the coronavirus outbreak. The strategy is even more feasible for some frustrated taxpayers, who may have gone to their vacation homes at the outset of the winter and have been unable to return – now racking up nearly enough days in Florida to make a case for a residency change.
“A lot of people are like ‘I’m here anyway I might as well give it a go,’” Noonan said. “Easing the SALT limitation would go a long way to keep folks living in these states.”
Prior to the implementation of the $10,000 cap, the average deduction claimed by New York residents was more than $20,000.
In 2019 New Jersey, Illinois and New York had the highest percentages of outbound migrations – with outflow concentrated largely among the highest income brackets.
As previously reported by FOX Business, U.S. Census Bureau data showed similar patterns as New York, New Jersey and Connecticut each lost tens of thousands of residents to Florida.
The White House has been consistently resistant to pleas to change the measure, which was enacted as part of the 2017 Tax Cuts and Jobs Act. However, given that many of the high-tax states have so far borne the brunt of the coronavirus crisis, experts have said it is feasible that the administration could walk back the provision – which New Jersey Gov. Phil Murphy said would deliver a form of “main street stimulus.”