Goldman Sachs: Higher SALT cap won’t keep wealthy in NY, California

A new analysis by Goldman Sachs finds that while lawmakers in Congress are weighing a higher cap on the state and local tax (SALT) deduction, those potential tax savings are unlikely to stop wealthier taxpayers from moving to states such as Florida and Texas.

The report, authored by Goldman economists led by Jan Hatzius, noted that over the last two decades, interstate migration has shifted the U.S. population away from the Northeast and West Coast to the South and Southwest. That migration has accelerated in recent years as a result of pandemic-induced changes in working arrangements as well as the $10,000 cap on the SALT deduction enacted through the 2017 Tax Cuts and Jobs Act, the report noted.

The $10,000 cap is due to expire at the end of 2025, and Republicans in Congress are considering the inclusion of a higher cap in the One Big Beautiful Bill Act, which narrowly passed the House last month with a $40,000 cap included to help secure the support of Republican lawmakers from high-tax states such as New York.

With Congress considering changes to the SALT cap, Goldman Sachs’ analysis found that high-income earners are continuing to leave high-tax states to low-tax states and that the trend is expected to continue even with a higher SALT deduction limit.

HERE ARE THE CHANGES TO THE SALT TAX DEDUCTION IN THE ‘BIG, BEAUTIFUL BILL’

Goldman Sachs found that a higher SALT deduction is unlikely to change high earners’ incentive to move from high-tax to low-tax states. (J. David Ake/Getty Images)

“Emigration from high- to low-tax states (and associated impacts) will likely continue. While the House Republican reconciliation proposal increases the SALT deduction cap to $40k for households under $500k per year, it does not change incentives for top earners who are most likely to move and have the largest impact on state budgets,” the Goldman economists wrote.

They found that tax filings by New York residents with more than $1 million in adjusted gross income (AGI) have risen by 40% since 2016. Such filings have risen at dramatically faster rates elsewhere, including 150% in Florida and 90% nationally. 

Aside from the Empire State, California and Massachusetts saw the steepest declines in filers above that $1 million AGI threshold, while Texas and Arizona experienced the second- and third-largest increases behind Florida.

TRUMP SPENDING BILL TO CUT TAXES BY $3.7T, ADD $2.4T TO DEFICIT, CBO SAYS

Florida has seen an influx of high-income taxpayers and businesses due in part to its low-tax economic environment. (Jeffrey Greenberg/UCG/Universal Images Group via Getty Images)

The analysis noted that high earners are more likely to bring businesses with them when they move to lower-tax states, which compounds the impact on the tax base of their former state. Goldman Sachs economists estimated that tax revenue in relatively high-tax states, such as New York and California, fell by around 3% with smaller declines of 1%-2% in other high-tax states like Oregon, Minnesota and Illinois.

Critics of the SALT deduction argue that high-tax states should shift to lower, more competitive taxes if they’re concerned about losing high-income residents or businesses to low-tax locales, contending that the federal tax code shouldn’t encourage higher state tax burdens.

OVER 300 ECONOMISTS URGE TRUMP, GOP LEADERS TO EXTEND TAX CUTS BEFORE MASSIVE TAX HIKE HITS AMERICANS

New York has seen an outflow of high-income earners to states with lower taxes. (ANGELA WEISS/AFP via Getty Images)

Advocates for a higher SALT cap pointed to the increased outflow of residents and businesses from high-tax to low-tax states under the 2017 tax law, leaving behind a heavier burden on residents.

“Not only does the SALT cap unfairly levy taxes and the State and Local Taxes people have already paid, but it’s also a major factor in pushing taxpayers out of higher-tax states like New York towards low-tax states like Florida and Texas,” Rep. Tom Suozzi, D-N.Y., told FOX Business in a statement. “SALT-induced migration encourages people to move away from their hometowns, and thereby increases the burden on those who choose to stay.”

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Suozzi added that the issue of outmigration will be a “major cause for concern when the 2030 Census rolls around and our representation in Congress shrinks once again” due to a smaller population during the once-a-decade reapportionment of House seats between states.