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| Dollar bills Photo by Sharon McCutcheon on Unsplash |
For more than 25 years, Rhona Vogel has served as the founding CEO of Vogel Consulting in Brookfield, Wisconsin. Her firm offers families an array of financial management services in areas such as investment advisory, estate planning, and taxation and accounting. As part of her work, Rhona Vogel stays current on various topics that affect her industry, including the high-tax state exodus that is changing parts of the country.
In recent years, New York, California, New Jersey, and other high-tax states have seen some of their wealthiest residents relocate to states with more favorable tax climates. According to data from Chris Edwards, the tax policy director at the libertarian think tank the Cato Institute, nearly 600,000 people from the country's 25 highest-tax states moved to the 25 lowest-tax states in 2016 alone.
The situation became more acute in 2019 when the effects of the Tax Cuts and Jobs Act (TCJA) were seen by taxpayers for the first time. Included among the many reforms of TCJA was a $10,000 cap on state and local tax (SALT) deductions. The cap on SALT deduction only affects those who itemize their returns, and the most-affected taxpayers are high earners.
When these high earners leave high-tax states, they take their income with them, which could create problems for state budgets. In New York, Governor Andrew Cuomo blamed the high-tax exodus for creating a $2.3 billion deficit in his state. Leaders in New York and other states have devised workarounds to circumvent the SALT cap, but they still face future challenges.
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