Tax the Rich
Eddie Lambert, Carl Icahn and David Tepper. What do they have in common (other than being billionaires), you ask? Well, they all left the high-tax states of the Northeast for the sunny, warm, no-tax state of Florida.
In case you didn’t know, there are seven states with no personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states don’t tax wages (New Hampshire and Tennessee) but do tax investment income.
“Tax the rich” seems to be a sentiment that is gaining traction because some people believe it can cure the budget problems many states are now facing, while in the throes of the economic devastation resulting from the shutdowns that occurred during the coronavirus pandemic. Not that some of these states were in great shape to begin with, but the shutdowns that occurred and are still occurring were just the icing on the cake of economic destruction.
As an example, New Jersey recently exacted a “millionaire’s tax.” More specifically, it extended its top tax rate of 10.75%, which previously only applied to individuals earning $5 million or more, to individuals earning $1 million or more. Those earning between $1-5 million previously paid 8.97%. So, the average NJ hedge fund or private equity manager, football player, entrepreneur or anyone making $5 million will see their tax bill increase by just over $71,000.
That may not seem like a lot on a $5 million dollar income, but that’s on top of 37% federal income tax they pay and the approximately $440,000 they were already paying in New Jersey.
When you add it all up, Mr. or Mrs. $5 Million Dollars is now paying just under $2.4 million in federal and state income taxes. So they can earn $5 million, pay tax of $2.4 million and net $2.6 million? Or another way of looking at it is: they work from January 1-June 28 of each year just to pay taxes. At some point, they will think enough is enough, especially if they feel they’re not getting any value for the increase in taxes.
In New York State, where I live, those with taxable income above $1 million account for about 1% of taxpayers and about 37% of the personal income tax revenue collected by the state. Not only do they contribute to state coffers by paying income tax, but the trickle down economic effect of the money they spend while living in their home, high-tax state is incalculable. Just imagine the spending in the local economy of the average run-of-the-mill billionaire: housekeepers, chefs, drivers, nannies, tutors, cars, planes, boats, restaurants, clothing, massages, gym memberships, hair styling, country clubs, theatre, sporting events, flowers, home improvements, home repairs, landscaping, etc., etc. The list goes on and on. Suffice it to say they spend a lot.
I’m sure Messrs. Lambert, Icahn and Tepper spent a lot of their money in the Northeast before heading south. Now they spend it in the no-tax haven of sunny South Florida. So not only did New York and New Jersey lose their income tax revenue, but the trickle down spending that went with it (though there have been reports that Tepper is back in New Jersey as of a few days ago).
It’s only a matter of time before more high net worth individuals get tired of paying more in tax for nothing of value in return and follow the lead of those before them and try out one of our seven no-tax states. Governors beware.
Stay safe, stay healthy, and remember we are all in this together.