Prosperous Americans to persist in migrating from tax-heavy states, regardless of enhanced State and Local Tax (SALT) relief by Goldman Sachs.
Here's the scoop about the SALT debate that's heating up in Congress! EJ Antoni, the brains behind economics at The Heritage Foundation, talks about soaring Treasury yields and what lawmakers should focus on in the gargantuan spending bill known as 'The Big, Beautiful Bill.'
According to an analysis by Goldman Sachs, some lawmakers are considering boosting the SALT deduction cap. But guess what? Those potential savings for wealthy taxpayers won't likely keep them in high-tax states like New York and California.
In their research, Goldman's economists, headed up by Jan Hatzius, pointed out that interstate migration has been shoving US citizens away from the Northeast and the West Coast for the past two decades, towards states in the South and Southwest. This move has been on a roll since COVID hit and the 2017 Tax Cuts and Jobs Act came to life, capping the SALT deduction at $10,000.
Republicans in Congress are currently tinkering with the idea of a higher cap, as it was included in the One Big Beautiful Bill Act, which just scraped a pass through the House last month (with a $40,000 cap in place to gain the support of certain Republicans from high-tax states such as New York).
Goldman Sachs found that a higher SALT deduction won't change the incentive of top earners to uproot and pack their bags for lower-tax states. According to the economists' findings, tax filings by New York residents boasting more than $1 million in adjusted gross income (AGI) have jumped by a whopping 40% since 2016. The rate of increase has smashed records in Florida (a 150% increase) and nationwide (an eye-popping 90% rise).
Other high-tax states such as California and Massachusetts saw the steepest decreases in filers above that $1 million AGI threshold. Meanwhile, Texas and Arizona experienced record influxes of taxpayers, finishing a close second and third, behind the Sunshine State, Florida.
By moving to lower-tax states, these high earners often bring businesses with them, hampering the tax base of their former states, as Goldman Sachs economists estimated that tax revenue in high-tax states like New York and California dipped by around 3%.
The SALT cap debate prompted critics to stress the importance of moving to lower, competitive taxes if high-tax states are concerned about losing wealthy residents or businesses to low-tax states, arguing that the federal tax code shouldn't prop up higher state tax burdens.
On the flip side, advocates of a higher SALT cap cited the moving trend since the 2017 tax law, claiming that the current SALT cap unfairly jacked up the taxes and state and local taxes for taxpayers in high-tax states, pushing them away from their homes towards low-tax states like Florida and Texas.
Overall, it appears that a higher SALT deduction cap might have lessened the incentive for high-income taxpayers to migrate from high-tax to low-tax states. However, the full impact depends on the details of the cap increase and other factors influencing migration decisions. As the situation evolves, keep your ears and eyes peeled for more updates on this ongoing debate!
- The debate over the SALT (State and Local Tax) deduction in Congress has been centered around potential savings for wealthy taxpayers, but these savings might not prevent high-tax states like New York and California from losing residents to lower-tax states.
- According to an analysis by Goldman Sachs, the interstate migration trend that has pushed US citizens away from high-tax states for the past two decades is unlikely to change even if the SALT deduction cap is increased.
- Republicans in Congress are considering a higher SALT deduction cap, which was included in the One Big Beautiful Bill Act, as a means to retain wealthy residents and businesses in high-tax states.
- By moving to lower-tax states, high earners not only decrease their own tax burden but also often relocate their businesses, affecting the tax base of their former high-tax states.
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