Texas is a lot of things to a lot of people, but not many would argue that it’s the country’s leader in intellectual capital–most would reserve that title for New York or California. However, because of new provisions in the recently passed tax bill, states like Texas and Florida could see an influx of the country’s smartest, wealthiest and most driven people and businesses.
The tax bill, formally known as the Tax Cuts and Jobs Act, places a new $10,000 limit on deductions for the total of state-and-local property, sales and income taxes. This limit hurts most for those who live in states with the highest state and local taxes (collectively being called SALT as the media continues to digest the tax bill, which was signed into law just before Christmas). Currently, the thought is that high income earners in states such as New York, California, Oregon, Connecticut, New Jersey and Illinois are able to stomach such high SALT because of the deductions they’re able to make when filing federally. Now, with this ability going away (at least until 2025), high income earners are faced with a big decision: stay put in the place they call home and watch upwards of 10% of their after-tax income disappear OR pack their bags for places like Texas, Nevada or Florida and keep more of their money.
Since the first draft of the tax bill was released, talking heads began discussing the potential economic impact. But what about the social impact? Imagine in 30 years if the country’s largest economic, cultural, technological and intellectual hotbeds were housed in cities like Houston and Orlando–instead of Manhattan and Chicago. That’s a major shift. What would happen to Manhattan and Chicago as we know them? How would state leaders deal with the mass exodus?
Instead of traveling to Manhattan for a Broadway Show or to Chicago for a weekend of fine art, you might find yourself flying into Tampa Bay.
Now that the bill has been signed, this scenario appears to be more fact than fiction. Before the bill was signed into law, Goldman Sachs estimated “New York City alone could lose as much as 4 percent of its top earners.” Of course, now that President Trump indeed signed the tax bill, that estimate is likely much higher. But, the migration won’t happen all at once. Furthermore, it won’t just be about existing money walking to another state. The ripple effect will cause the nation’s up-and-comers to choose low SALTed states when they are beginning their careers, before they are even a blip in the eye of the IRS.