Memo to Kathy Hochul and Gavin Newsom: Why taxing the rich makes enormous sense

Friends,

Yesterday, New York City’s new mayor Zohran Mamdani proposed raising property taxes in the city by nearly 10 percent — if he can’t persuade New York Governor Kathy Hochul to raise income taxes on the wealthy. She’s been reluctant.

In California, meanwhile, Google co-founder Sergei Brin along with former Google CEO Eric Schmidt and other billionaires are financing several voter initiatives to limit the creation of a new billionaire tax in California. California Governor Gavin Newsom is also against it.

Why are the governors of the most progressive and richest states in America so unenthusiastic about raising taxes on the wealthiest of the wealthy?

The kindest answer is they’re worried that the rich will abandon their states. (The unkinder is that they’re in the pockets of said rich.)

Governors Hochul and Newsom: Don’t worry about raising taxes on the rich.

True, a few rich people may abandon New York or California if taxes on them are raised, but evidence suggests the vast majority will stay put.

When billionaire New York mayor Mike Bloomberg faced a budget deficit in his first term, he raised property taxes by 18.5 percent. Rich New Yorkers threatened to leave. Most did not.

A graph from the “Citizens Budget Commission” (financed by rich New Yorkers) purports to show New York’s “shrinking share” of the nation’s millionaires — from 12.7 percent in 2010 to 8.7 in 2022 — as evidence New Yorkers are fleeing high taxes.

But that “shrinking share” isn’t due to New Yorkers fleeing; it’s because a growing number of millionaires are being hatched in Texas, Florida, and California.

A study by the Fiscal Policy Institute found no significant out-migration by wealthy residents of New York State in response to tax increases in either 2017 or 2021. The latter tax increase is estimated to have raised approximately $3.6 billion annually. Since then, the number of wealthy in New Yorkers has increased.

When Massachusetts passed its “millionaire’s tax” in 2022, rich residents of the Bay State threatened to leave. They didn’t. Instead, the state has collected $5.7 billion in additional revenue, while the number of millionaires in the state has grown, according to a study by People’s Policy Project.

After New Jersey raised its top tax rates, researchers found little out-migration among millionaires. The measure generated substantial revenue.

Other research examined 45 million U.S. tax filings of families or individuals with over $1 million in income. It shows that affluent households are even less likely to move to another state than middle-income or poor households.

Why are the rich staying put, even though their taxes are being raised? Because they’re rich! They can afford to stay put.

Most people don’t want to move — either because their friends or parents or children live in the vicinity, or they don’t want to disrupt the education of their younger children, or they have networks of business associates and clients in the area, or they like the cultural amenities, or they don’t want the legal and administrative hassles of moving.

Most people move because they have to. Their employer tells them they must. Or the best job they can get forces them to. Or they they have to take care of a sick parent. Or their own aging bodies can no longer abide the cold.

But the rich don’t have to move. The Fiscal Policy Institute study previously mentioned shows that in 2023, earners in the top 1 percent migrated out of New York less frequently than those in all other income groups.

New York’s and California’s super-rich are richer than they’ve ever been; the wealth they’ve amassed is larger than any group of Americans has ever possessed; they don’t know what to do with all their money. The taxes they would pay under the proposals put forward are infinitesimally small, almost rounding errors, compared to their fortunes.

Yes, PayPal co-founder Peter Thiel (who financed JD Vance’s senate run) has abandoned California, complaining about the billionaire tax. So have venture capitalist David Sacks (now Trump’s “czar” for crypto and AI), Elon Musk, and Meta’s Mark Zuckerberg (who reportedly bought a mansion in Miami).

But the question must be asked: is California really that much worse for losing Thiel, Musk, and Zuckerberg?

Maybe raising taxes on the super-rich not only provides critically-needed tax revenue but also acts as a kind of disinfectant, purging a city or state of a few of its most noxious and socially-irresponsible inhabitants. Another reason to do so!

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