A recent analysis from Goldman Sachs suggests that even with a high limit on state and local tax (SALT) deductions, the trend of people moving to states like Florida and Texas is unlikely to change.
This report, led by economist Jan Hatzius, indicates that over the last two decades, the U.S. has seen a significant population shift from the Northeast and West Coast to Southern and Southwestern states. This migration seems to have intensified lately, influenced by changes in work arrangements due to the pandemic and the $10,000 cap on SALT deductions established by the 2017 Tax Cuts and Jobs Act.
There’s a chance that this $10,000 limit may expire at the end of 2025, and Republicans are discussing the possibility of raising it in upcoming legislation. They recently proposed adjusting the cap to $40,000 to gain support from lawmakers from high-tax states like New York.
Goldman Sachs’ findings reveal that despite potential changes to the SALT deduction cap, high-income individuals are still leaving high-tax states for those with lower taxes. Even with a higher cap, this trend is expected to persist. The analysis highlights that an increase in the SALT deduction cap could affect households earning less than $500,000, but it may not significantly influence the decisions of top earners who are more likely to relocate.
Interestingly, tax returns from New York residents with an adjusted gross income of over $1 million have surged by 40% since 2016, whereas other states, like Florida, saw even larger increases—up 150%—making it clear where many of these individuals are opting to settle. On the other hand, states like California and Massachusetts have faced significant declines in high-income filers, while Texas and Arizona have reported notable increases.
This analysis indicates that high-income individuals are not just moving; they’re taking their businesses with them, which can exacerbate tax revenue issues for their previous states. In fact, Goldman Sachs estimates that tax revenues in states like New York and California have dropped by around 3%, with smaller declines in states such as Oregon, Minnesota, and Illinois.
Some critics argue that if high-tax states are genuinely concerned about losing wealthy residents and businesses to more favorable tax environments, they should consider lowering their own taxes. Proponents for increasing the SALT cap assert that the current situation creates a heavy burden, highlighting an uptick in residents and businesses relocating from high-tax areas since the 2017 tax law was enacted.
Senator Tom Suozzi (D-NY) expressed concerns, stating that SALT caps not only unfairly limit the state and local taxes people are already paying but also significantly contribute to the migration of taxpayers from high-cost areas like New York to low-cost ones like Florida and Texas. He added that this trend could lead to a diminished population in certain areas, raising concerns ahead of the 2030 census and the potential impact on congressional representation.
