When it comes to raising taxes, politicians never seem to know when to stop. They want things to go back to the good ole’ days when the rich had to pay 70 percent on their income in taxes. It doesn’t matter how many jobs they create. Just ask Amazon, who recently decided to pull their plans to build a headquarters in Long Island City, Queens.
When New York cannot tax businesses and corporations, it goes after its residents. However, when residents decide enough is enough and attempt to leave, New York goes to extraordinary lengths to catch wealthy residents who try to flee its burdensome taxes.
Just like any prudent business, a state must operate on an annual budget. The state must forecast how much it expects to make in revenue against how much it can spend.
Unfortunately, governments are usually pretty bad at budgeting and do a poor job managing its expenditures. To acquire more money to fund future expenditures, governments usually resort to raising taxes. A problem occurs when taxpayers decide to leave yet the expenses remain to leave a large hole in the state’s treasury.
The aggressive approach by state tax collectors comes as the Empire State faces a $2.3 billion budget deficit that even Democratic Governor Andrew Cuomo called “as serious as a heart attack.”
Whose to blame?
Gov. Cuomo has blamed congressional Republicans for passing tax reforms that reduced the state and local tax deduction Americans can take on their annual income tax forms — meaning residents of high-tax blue states like New York have been feeling the pinch, sparking their exodus.
“This is the flip side. Tax the rich, tax the rich, tax the rich,” Cuomo said last month. “We did. Now, God forbid, the rich leave.”
Look forward to being audited
New York state auditors are doing their best to make sure that residents fleeing the state’s high taxes face difficulties. This includes being subjected to an audit — likely to be followed by a massive tax bill.
For New York, these audits are business as usual. New York conducted 3,000 “nonresidency” audits between 2010 and 2017, recouping around $1 billion from the practice, CNBC reported. Between 2015 and 2017, the auditors on average collected $144,270 per audit, with more than half of those who were audited losing their cases.
Basically, if you are one of the unlucky people that gets audited, you have almost no chance of winning. But why?
New York’s success rate on audits can be attributed not only to the traditional methods of investigation like going through an individual’s credit card bills, but also to new high-tech tools that include tracking phone records, social media, and even veterinary and dentist records, according to the outlet.
“If you’re a high earner in New York and you move to Florida, your chances of a residency audit are 100 percent,” Barry Horowitz, a partner at the WithumSmith+Brown accounting firm, told CNBC. “New York has always been aggressive. But it’s getting worse.”
New York is also working extensively to catch those high-worth individuals who fake their move to Florida in a bid to avoid paying steep taxes in New York.
New York isn’t the only state losing residents
Data show that between July 2017 and July 2018, the high-tax and Democrat-controlled states of New York and Illinois lost the most residents, with New York losing more than 48,000 residents, while Illinois’ population declined by more than 45,000, according to the U.S. Census Bureau.
It remains unclear how many top-tax-paying residents were part of the people who fled the states, but the data show that low-tax red states like Florida and Texas gained new residents.
Unlike in New York, where punishing tax rates apply to fund its escalating public sector and a welfare state, Florida’s residents aren’t subjected to any income or estate tax.
Even Blanca Ocasio-Cortez, the mother of pro-tax Representative Alexandria Ocasio-Cortez, touted Florida’s low-tax system after fleeing the Big Apple.
“I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida. It’s stress-free down here,” she told the Daily Mail from her home in Eustis.
An unsustainable tax strategy
New York’s aggressive and idiotic approach toward its former residents is unsustainable and may cause some unintended consequences. While recouping unpaid money works for the state’s treasury in the short-term, such practices create a hostile environment for the wealthy that threatens to accelerate their exodus. It also damages the state’s reputation by making future potential residents leery of relocating to New York.
And with the top 1 percent paying nearly half of the income taxes in the state, New York can’t afford any more departures or losing out on future residents.
“Even if a small number of taxpayers leave, it has a dramatic effect on this tax space,” Cuomo said last month.