New York, California Lose Firms Managing an Estimated $2T in Assets
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WRT Dobbs, while people think it is ostensibly about abortion, in many cases it is simply about access to healthcare, regardless of your views on abortion. There are many women, especially professional women, who will flat out refuse to move to Texas. I've lived in Texas for over 2 decades, and personally know more than one couple (all of whom desperately wanted children) that had to leave Texas to terminate pregnancies after doctors determined the fetus had conditions "incompatible with life". And this was before Dobbs. These are not rare cases.
With regard to transgender rights, I know a highly educated professional in Texas that moved to Washington State because his child is transgender.
Regardless of one's views on abortion or LGBTQ rights specifically, when it comes to individual, personal cases, I have yet to find anyone who wants their medical options limited by a bunch of politicians in the state legislature. Companies that need a highly educated workforce are going to find they will have difficulty getting people to certain states based on state reduction in personal rights. I actually think the states that will be most poised to benefits are those with a lot lower taxes/regulations than CA/NY, but who haven't passed as restrictive laws as places like TX and TN.
It's in interesting that for more personal decisions (i.e., child is transgender) WFH - or the lack there of - has sociopolitical impact, and is not simply work related.
1. the commercial property market 2. the loss of high-income taxpayers
The "$2 in assets" figure seems a bit misleading because that isn't money that those states are taxing directly.
What is it that is driving these companies to relocate their HQs? Are the companies themselves saving money on taxes? Is it just that their high-earners want to be in a low/zero income tax state? The article doesn't make that entirely clear.
California state revenue is ~66% income tax.
Don't have resources for what percentage of that comes from the top 1%, but it's likely more skewed than at the Federal level, which is ~45% of income tax.
It's almost as if Prop 13 wasn't a genius idea, and it's starting to come back to bite the state.
Yeah, articles like this frustrate me because there isn't much of an attempt to paint the whole picture. It's a catchy headline and a cursory examination to back it up. For example:
> The net number of taxpayers moving out of New York based on the preliminary 2021 tax-year data at the time was over 10,000 higher than the annual net average of 28,700 personal income taxpayers between 2015 and 2019
There's a turnover of people moving in and out of every state, every year. That the figure was around 1/3 higher in 2021 than in previous years certainly feels notable.
> The migration trend followed a net total of 112,400 taxpayers moving out in 2020, nearly four times as many as in 2019, according to the comptroller’s study.
Now what might have occurred in 2020 to cause such large numbers of moves? It amazes me the article doesn't say the word "COVID" once. In that context the 2021 numbers look like a move back towards the norm of previous years. But there's no attempt to examine that.
Generally, it's because of lower cost of living. But, there are other things mentioned such as bringing expertise to areas requiring more diverse financial needs, as well as quality of life/relaxed life style. But, almost all studies of this migration point to cost of living.
https://www.bloomberg.com/graphics/2023-asset-management-rel...
FTA, it sounds like AllianceBernstein in particular planned this move in 2018, and plans to relocate around 1000 jobs to TN. So that's around 1/4th of their workforce, assuming people go along. AB themselves however are primarily owned by Equitable, which continues to be headquartered in the city. So it's hard to get a clear picture of what any of this actually entails, either for employment figures or local tax take-ins.
Tl;dw: One of the key points in his hypothesis was that Texas is a Goldilocks zone where firms receive attractive tax breaks from the state and the workers receive attractive services from the cities.
Thoughts on if this model makes sense and if this could make sense for states like NY and CA to follow if so?
So a city being “red” or “blue” does not seem like it would make much of a difference.
Companies are moving to Texas, and cities like Austin seem to be popular amongst people who agree with leftist perspectives.
fwiw, I'm from up upstate NY and what we've seen is companies and people leaving over the decades while taxes increasing. It doesn't seem sustainable.
Likewise, a professional couple relocating from New York may not agree with state or local policies around schools, or gun control, or air quality; but they can probably afford private schools (which they were probably already using in New York, even if they largely agreed with NY's public school policy), and a home in a secure neighborhood, and an electric car. They may have delayed having kids, or had fewer kids, or maybe they don't have kids at all and live the DINK life where there DI goes much, much further.
Cities like Austin have all the amenities that a "lifestyle leftist" would want: local stores selling local goods and produce; farm-to-table restaurants; a vibrant arts scene; plentiful EV chargers; etc. Such a person will probably live near like-minded people, with whom they will lament that Abbot has to go and that it's unfortunate that the state government is so hostile to teachers, or the environment, or trans people; but they're not going to take meaningful action that might bite the hand that feeds, like pushing to reduce corporate subsidies or increasing financial or environmental regulations.
Totally agree with what you've said about upstate NY - it's pretty depressing to visit these days. Taxes and regulations aren't the only aspect, but they're a huuuge part of it. Have seen some valiant efforts to turn things around (e.g. SUNY), will have to see how that works out.
With regard to Austin and TX, will be interesting to see how that plays out. Austin has always been more liberal ("The People's Republic of Austin" was a nickname), but now essentially all the major cities in TX (not to mention everywhere else) are liberal. TX State Leg and Austin used to fight a lot, but things have gotten decidedly worse recently with the state trying to neuter all local control (and even doing some particularly gross things like passing voting legislation that only applies to Houston). See https://www.texasobserver.org/death-star-hb-2127-democracy/
I used to love Austin, but not so much anymore, and it's not just a "back in my day" story. When I first moved here, I thought "yeah, it's smack in the middle of Texas, and it doesn't have anywhere near the amenities (arts, sports, architecture, transit connections, etc.) of a larger coastal city. But it's so much cheaper than those cities, so you can actually afford to take a lot more advantage of the things it has. And from a weather perspective, sure you've got 2 months of super hot summer, but then you get 10 months of great weather."
Those tradeoffs have started to go rotten. Austin is now expensive as fuck (with the traffic to match) but it still lacks the amenities of a larger city. The state government has really started negatively affecting the day-to-day lives of citizens. And from a weather perspective, this is not just a hellish summer - we've never had anything like this continuous onslaught of 105+ days, and it's only going to get worse.
Look at Disney and Florida as a good example. Big firms (and the employees that want the personal freedom to love who they want, and make the medical decisions they need to make). This is a very (unsurprisingly) short minded perspective. It matters if the states are blood red.
How might this play out over the years ahead? What might this mean for the long term prosperity of these states respectively as capital (human and material) shifts from blue states to red states? Will CA and NY maintain their entitlements and policies as their tax base moves out? Will FL and TX eventually turn blue and this happens all over again?
It's a lot of questions, but trying to leave it open ended and as unbiased as possible.
Counter-balancing those stories are when people move to Texas for the lack of income tax, they discover that TX Makes up for that with higher property tax, and the weather is terrible.
It would be great if there was an exodus of people out of the Bay Area, then the place might become less insanely expensive.
On the topic of property tax, that very well might be true for CA, although NY and TEX property tax seems similar despite the average home in TEX being almost half as much. https://www.rocketmortgage.com/learn/property-taxes-by-state. Additionally, there may be other cost of living factors that make TEX more or less attractive.
The big win by moving out of CA is affordable housing. However, most of the cool alternatives like Austin and Portland have also gentrified (and they hate Californians, at least in Oregon)
To be fair, the cities were passing draconian laws like “outdoor workers must receive periodic water breaks” so I, for one, am glad that the legislature is standing between us and the jackbooted thugs of the regulatory state.
The residents of Delaware perhaps benefit in some minuscule way, but the money isn't being spread out.
For reference, the method used before was typically called “cost of performance”.
In either case, changes in income quintile/decile would be a better measure than whatever this article is supposed to show.
There's no doubt that there is more to lose than just the direct job losses. There's the GDP impact of those people traveling to the city, eating lunch, taking out clients, sticking around after work to socialize. It's not easy to put a number on it but it's definitely much larger than just the direct income tax losses.
> Most states have moved to market based sourcing rules for corporate taxes, so revenue is taxed where the services are received. If the clients are still in CA/NY, I presume it does not change much.
It doesn't work like that for managing assets as the client is delivering the assets to the manager in their jurisdiction. Where the manager's revenue is taxed is based on the location of those employees and the company headquarters. Not where the customer assets came from.
If I recall correctly NYC has a 1% income tax so the City alone is missing out on 200 million a year in tax revenue.
Edit: thanks for the correction
https://www.mhmcpa.com/insights/article/evaluating-economic-...
> States are currently electing to move from performance-based sourcing methods to market-based sourcing, which may prove difficult for PE/VC firms that will be required to allocate management fees to the home states of their investors rather than where they conduct business. The management company may be considered to have economic nexus in a state where its fund’s investors are located if management fees are allocated to those states and economic nexus thresholds are exceeded.
https://rsmus.com/insights/services/business-tax/state-nexus...
Ha! One cannot even imagine the wave of litigation that will fight this effort. I don't see the States winning the cases either.
If California and New York want those dollars back, extract it through the federal government and the top 40% of taxpayers who pay federal income tax and can't avoid it (congresscritter hustle). You know, like red states do [1].
(tangentially, this will not age well when Texas and Florida come with their hands out for climate costs [2] [3]; grab those bootstraps y'all)
[1] https://wallethub.com/edu/states-most-least-dependent-on-the...
[2] https://www.marketwatch.com/story/florida-and-texas-are-expe...
Real estate price changes are maybe good for NY and CA but of course you get rising prices in the new states.
But California's GDP rises faster than most states and countries in the world so it's probably good the rest of the world gets our hand-me-downs...
This isn't like an auto plant leaving town. This is a few dozen people who move electrons around.
The revenue from % of investment profits, generally in 15-20% range, is additional and harder to estimate.
* average 1% asset management fee (modal number if you poke around)
* 0% investment carry (hedge funds get away with charging this, but most asset managers don't)
* 9% effective tax rate (revenues disproportionately go to high earners)
gets you $1.8B lost tax revenues. The 0% carry assumption is very conservative, so the $1.8B is a lower bound. Even so, CA and NY collect about $400B annually. As a first order thing, this doesn't move the needle very much.
If cities/stats were competing primarily based on quality of life/services/infrastructure then that would be great, but instead they often wind up trying to just offer ever more lavish tax incentives.
"Red states" tend to favor tax structures that are regressive and place greater burden on low/middle income people. "Blue states" often try and tax wealth and corporate income and use the money to provide more services.
Plus, obviously provided services can make up for the lack of taxes. I'm just saying lower taxes, all other things being equal, are a good thing.
Texas, as an example, makes up for its lack of a personal income tax with other taxes. The state is thriving rather than imploding (which is not the same thing as having no problems at all), despite what its detractors would like to see.
I've never seen an example where taxation at a large scale (countries, states) actually turns into a race to the bottom. That's only a theory that has never once come to fruition in actuality. Whereas in actuality what has happened, is that targeted low taxation (eg no state income taxes) is a tremendous competitive advantage if you manage it even somewhat well (offset it with other taxes, and organize it to whatever your state/nation's competitive advantage/s are). Which is why Texas and Florida are expanding, while California and NY are not (despite their former massive advantages). Illinois should be a dramatically better place than what it is in terms of prosperity and quality of life, instead it has been in either a stagnant or moribund condition for a long time, thanks to their poorly managed bureaucracy and relatively high taxation (routinely in the top five in combined local + state income tax rates).
Ireland is an example of race-to-the-bottom. Their corporate friendly policies benefit them in the short term, but screw over the rest of the developed world. We need to tax the wealthy and corporations, not compete for the favor of our feudal lords.
That...doesn't sound like him and certainly seems at odds with his actual public statements on the topic: https://www.cnbc.com/video/2019/02/25/warren-buffett-amazon-...