Friday, May 6, 2016
Breaking the State with a Simple Move
If you concentrate the revenue-generating power, the wealth, in the hands of a decreasing number of people, by definition, those individuals are the source of a very large chunk of personal income tax for the states in which they reside… if those states have personal income tax. We already know that American corporations, through loopholes and off-shore shelters, face a 35% federal corporate income tax, but for corporations with $10 or more million dollars per year in gross revenues, they only pay an average of 12%-13%... with many mega-corporations paying zero.
So we can ask if those one-percenters choose to leave an income-tax-charging-state and relocate, business and family, to a non-personal-income-tax state, should the state they leave care that much? Take New Jersey (with high personal income tax) and a certain former resident and hedge fund billionaire, David Tepper, who moved to Florida, which does not have personal income tax. “[New Jersey’s] wealthiest resident had reportedly ‘shifted his personal and business domicile to another state,’ Frank W. Haines III, New Jersey’s legislative budget and finance officer, told a State Senate committee. If the news were true, New Jersey would lose so much in tax revenue that ‘we may be facing an unusual degree of income tax forecast risk,’ Mr. Haines said.” New York Times, April 30th. Florida is laughing. New Jersey is crying. One person made that difference.
“New Jersey won’t say exactly how much Mr. Tepper paid in taxes. But according to Institutional Investor’s Alpha, he earned more than $6 billion from 2012 to 2015. Tax experts say his move to Florida could cost New Jersey — which has a top tax rate of 8.97 percent — hundreds of millions of dollars in lost payments.
“Mr. Tepper, 58, declined to comment on his move. He does have family — his mother and sister — who live in Florida. But several New Jersey lawmakers cited his relocation as proof that the state’s tax rates, up from 6.37 percent in 1996, are chasing away the rich. Florida has no personal income tax.
“‘If you’re making hundreds of millions of dollars and you’re paying close to 10 percent to the state of New Jersey, you do the math,’ said Jon Bramnick, the Republican leader in the New Jersey Assembly. ‘You can save millions a year by moving to Florida. How can you blame him?’” NY Times.
For so many states, individual windfalls – serendipity – becomes heroin to states addicted to those super-wealthy individuals, people and companies who need little impetus if pushed hard enough to move. Some billionaires just don’t care… they are giving their money away anyway. Others just cannot stand the thought of paying so much in tax when a move to a tax-friendly locale would save them hundreds of millions.
“In New York, California, Connecticut, Maryland and New Jersey, the top 1 percent pay a third or more of total income taxes. Now a handful of billionaires or even a single individual like Mr. Tepper can have a noticeable impact on state revenues and budgets.
“California had to account for a ‘Facebook effect’ in 2012 and 2013 after that company’s 2012 initial public offering of stock. The offering generated more than $1 billion in revenue — much of that from the chief executive, Mark Zuckerberg, and a small group of company shareholders. Washington, D.C., had an unexpected $50 million gain in its 2012 fiscal year — which helped create a budget surplus — after the death of a local billionaire increased its estate tax receipts.” NY Times.
Just as Citizens United gave the mega-rich an unlimited political voice, just as tax loopholes (e.g., capital gains rates, lower carried interest rates for fund managers, off-shore tax structuring, etc.) gives them special options to earn even more, so too does the reality of their impact on state budgets gives them the ability to influence, cajole and ultimately generate special treatment from their states of residence… or potential residence. All of these options are clearly not to be shared with the “rest of us.”
Some keep their homes in the original state and spend enough time in their declared state to avoid taxes. They really do want to sever ties with their friends and local institutions, but they hate the tax bill. For those, state revenue agencies are beginning to track when and where money is earned, taking a more aggressive approach to collections and enforcement. Others simply drop to their knees: “Connecticut, home to several hedge fund billionaires, now tracks the quarterly estimated payments of 100 of its top earners. Kevin B. Sullivan, commissioner of the Connecticut Department of Revenue Services, said about five or six of the highest earners could have a ‘measurable impact on the revenue stream.’
“Mr. Sullivan said that when one of the state’s rich hedge fund executives planned to move his family and company to a lower-tax state, state officials met with him and persuaded him to leave some of his work force in Connecticut… ‘We knew we were going to lose him,’ Mr. Sullivan said. ‘But we wanted to keep some of the higher-paying jobs.’ He said the state worked out a deal to keep the jobs in exchange for an agreement about the owner’s regular visits to family and friends in Connecticut. (Homeowners who spend more than 183 days in the state are considered residents for tax purposes.) He said the state was holding discussions with other top earners in hopes of keeping them… ‘I’m not saying we’re sending fruit baskets and get-well cards,’ said Mr. Sullivan, a former Democratic legislator. ‘But we’re trying to send a more welcoming message to the high earners as a group.’
“New York is now more closely monitoring wealthy taxpayers who have homes in New York but claim Florida as their tax residence. And New Jersey is collecting data on all of the taxpayers who make more than $1 million to forecast their tax payments more accurately… In California, 5,745 taxpayers earning $5 million or more generated more than $10 billion of income taxes in 2013, or about 19 percent of the state’s total, according to state officials…‘Any state that depends on income taxes is going to get sick whenever one of these guys gets a cold,’ Mr. Sullivan said.
“Hence New Jersey’s concern over Mr. Tepper’s departure. Whatever the reasons for his move, he is leaving for Florida at an especially opportune time for tax savings. Many hedge fund managers have for years used a tax loophole that allowed them to defer taxes on fees they earned through the use of offshore funds. A 2008 federal tax rule, however, requires them to declare those fees by the end of 2017 and pay any necessary federal, state and local taxes.
“For some hedge fund managers, the amounts declared will probably be in the billions of dollars, accountants say. A spokesman for Mr. Tepper declined to comment on his overseas income. By moving to Florida, Mr. Tepper could avoid paying state income taxes on any such funds… ‘If he’s bringing money back, you’re talking about a big possible gain,’ Mr. Bramnick said. ‘So it’s a good time to move to Florida.’” NY Times.
Income inequality in the United States has pushed ownership of a majority of this nation’s wealth into the hands of under 100 families. The playing field remains severely tilted to support those who earn the most, giving them breaks and benefits not available to ordinary taxpayers. Government does not work for a huge number of Americans, a fact folks from the Sanders-Trump populist movement are screaming to American voters. Some think jobs come from lowering restrictions and taxes on those at the top, while – after years of watching that theory go down in flames – know that equalization requires spreading that wealth back to average Americans… untilting that playing field. Too much money and too much power in too few. We need a change. A big change. Soon. We need to end the plutocracy and return to democracy.
I’m Peter Dekom, and unless this feeling overwhelming unfairness favoring the wealthy is extinguished, what hope is there to keep the United States in tact?