Would Mamdani's 'millionaire tax' chase the rich out of New York City?

USA Today

15 hours ago

In her unsuccessful 2024 presidential campaign, Democratic candidate Kamala Harris pledged to preserve most of Donald Trump's 2017 tax cuts, with at least one notable exception: She would have raised taxes on the wealthiest Americans.
Now, the Democratic nominee for mayor of New York is floating a similar proposal. Among other plans, Zohran Mamdani wants to raise income taxes on the wealthiest New Yorkers by 2%.
The idea, in both cases, is to create revenue by taxing rich people and use the money to pay for other initiatives. Harris sought taxes from the wealthy to pay down the nation's estimated $2 trillion deficit. Mamdani, a democratic socialist, wants free city buses and a freeze on New York rents.
Taxing the rich has worked before. In the World War II era, the wealthiest Americans endured a top tax rate above 90% to buoy the economy.
But would it work now?
Millionaires might flee higher taxes
The standard objection is that raising taxes on wealthy Americans will chase them away. They will leave the city, the state or the country, or take steps to avoid paying taxes, such as moving wealth offshore.
Here's how opponents greeted Mamdani's proposal:
New York Gov. Kathy Hochul, who could veto a tax hike, has said it would prompt millionaires to flee. 'I don't want to lose any more people to Palm Beach,' she told a television interviewer, according to the New York Post.
In a commentary for Reuters, financial writer Marty Fridson warned of 'the possibility, if not the probability, that many high earners will leave NYC to escape the added tax bite.'
The New York Times assembled a rail of escape-from-New-York quotes from business leaders. Sample: 'We may consider closing our supermarkets and selling the business,' said John Catsimatidis, owner of the Gristedes chain, speaking to The Free Press.
Mamdani's campaign estimates that a 2% tax on New Yorkers earning more than $1 million a year would raise $4 billion a year.
That projection wouldn't pan out, of course, if enough millionaires left the city to avoid the tax.
Are 'millionaire tax' warnings overblown?
Are the dire warnings overblown? Maybe so, according to copious research on taxes and their impact on migration. But a lot depends on whom you ask.
Higher taxes don't generally prompt wealthy people to move, said Kamolika Das, local policy director at the Institute on Taxation and Economic Policy, a left-leaning think tank.
'Tax policies just really don't drive relocation decisions,' Das said. 'They've been claiming this for a long time, and there's just very scant evidence to support it.'
A 2023 study by the nonpartisan Fiscal Policy Institute found 'no evidence of significant tax-motivated migration' from New York State, even after tax increases.
The main reasons: Top 1% earners move at a lower rate than other income groups. And when they do move, they generally relocate from one high-tax area to another.
In 2004, New Jersey raised its top income tax rate on high earners by 2.6 percentage points.
'In the next year, a total of 37 millionaires left,' said Lindsay Owens, executive director of the Groundwork Collaborative, a progressive thinktank. 'But in that very same year, the millionaire population of New Jersey increased by more than 3,000 individuals.'
Not all researchers agree.
California lost high earners over taxes
Fridson, the Reuters columnist, cites a study from the nonprofit California Center for Jobs & the Economy. It shows a net loss of $5.3 billion in personal income tax from high earners leaving California in a five-year span after a 2016 ballot measure that extended higher taxes on the wealthy.
Higher taxes in New York 'will raise revenue. There's no question of that,' said Jared Walczak, vice president of state projects at the nonpartisan Tax Foundation. But a tax hike 'does drive some people out,' he said, 'and it can be more significant in New York City than it would be at the state or the national level.'
Leaving the United States over taxes is one thing, Walczak said. Moving from Manhattan to Hoboken, New Jersey, is quite another.
'It is much harder to leave a country than to leave a state,' he said, 'and harder to leave a state than to leave a city.'
Walczak notes that the 2% tax increase proposed by Mamdani is a flat rate on all income earned by a wealthy New Yorker, 'down to their first dollar.' It would raise the top tax rate in the city from roughly 3.9% to 5.9%.
At that rate, high earners 'would be paying more in city taxes in New York than they would be paying in state taxes in most states,' Walczak said.
The remote-work boom of recent years spawned pandemic "boom towns," generally lower-tax cities that filled up with refugees from higher-tax cities who could work remotely.
"I could work for a firm in New York City but take my residence to, I don't know, Austin, Texas, where they don't have any income tax," said Therese McGuire, professor of strategy at Northwestern University's Kellogg School of Management.
Research by the Tax Foundation shows that high-tax states tend to lose residents to other states, while low-tax states tend to gain them. Taxes are one factor among many, including jobs, weather, quality of life and the broader cost of living.
Other studies suggest that millionaire tax flight is happening, but 'only at the margins,' and at a negligible rate.
'We make our decisions about where to locate ourselves and our families based on a whole host of considerations, many of which are not pecuniary,' Owens said.