Unknown: What really
excites me about Miami, pro technology, pro
capitalism, pro immigration, you know,
cheap housing, low cost of living low taxes when
all your friends are now in Florida, and you're
the uncool guy or woman who's in New York, that
is something that could be a tipping point. We've
had massively bad recessions. We had a $35
billion budget shortfall in 2001. Somehow we come
back, but you never know when that time is going
to be the last. It's been called the anti
California dream, the tech Exodus, the great
migration between 2008 and 2019 18,000 companies
have left California for more tax and regulatory
friendly states. Damn, we're talking about Elon
Musk moving from California to Texas
Oracle saying they are changing their corporate
headquarters from Redwood Shores Calif to Austin,
Texas. And while it may be an overstatement to
say California is hemorrhaging people, some
of California's wealthiest residents like
Elon Musk are leaving to California has to realize
that eventually all of the anti business laws
and regulations they pass we're gonna catch up with
them. Erica Douglas was an early part of the
Exodus. She moved her seo software company whoosh
traffic and her employees to Austin six years ago.
I can remember writing one check to the state of
California for one year, and it was like $24,000
for a year and that was just income tax to the
state that was not federal tax. The state's
population and job growth have both slowed to a
trickle census data shows more than 650,000 people
left in 2019, after seven years in a row where
departures were on the rise. In fact, California
has lost more people to other states than it's
gained for much of the last two decades. And
with the rise of remote work in 2020 added extra
flexibility, over 135,000 More people left
California than moved here, the third largest
net migration loss ever recorded. As we lose
really successful businesses such as Oracle
and Hewlett Packard, that changes how many high
paid jobs we're going to have changes really the
whole nature of the state, it changes how
many tax dollars go into Sacramento, how many tax
dollars fund our schools, whether there's money
left over to repair roads and bridges is really a
huge problem in the state that the state is facing.
We asked the experts and those leaving what's
behind this trend? Can anything be done to
reverse it? Or is this a true shift for business
in California as we know it. For a century and a half,
California was in an almost constant state of
Growth with booming business and expanding
population. There's something magic in
California. The culture just seamlessly and
consistently moves towards what's next with
new ideas. California's Gold Rush that started in
1848 lead to one of the largest migrations in US
history with hundreds of 1000s coming from across
the country in the world. The population explosion
qualified California for statehood in 1850, just a
few years after it was seated by Mexico,
California was an economic powerhouse by
the end of the century, home to iconic brands
like Wells Fargo and Levi Strauss scientists and
researchers started flocking to the Bay Area
in the early 1900s, when San Francisco's port and
nearby Moffett Field made the area a major hub for
early telegraph, radio and aerospace industries.
Stanford university founded in 1885, led the
way in encouraging students to commercialize
their ideas leading to graduate students to
start what many consider the first Silicon Valley
startup in 1939. Hewlett Packard, California has
been the leading indicator in software,
digital technology, modern mobility, the
environment, the space industry, and is the
front door between the United States of America
and the Pacific Rim in the Asian markets. So
watching our state, fumble and stumble is not
just something that's a California issue. It is a
national and global issue. California's
economy has grown to the fifth largest in the
world, it had $65.6 billion in VC investment
in 2019. By far the highest of any state, all
that venture capital is concentrated in San
Francisco and Silicon Valley. But once those
businesses do get a cash infusion from venture
capital and get on their feet and become
successful, then the advantage of being in
California Silicon Valley is much less and that's
when we see them leaving for the longest time you
wanted to run the circles. If you were in
tech, you needed to be able to run into other
people in tech and have that you know that brain
there in one place. Increasingly, I think HP
and others are sending the signal in a much more
remote work oriented environment where you
have the tech and we've also had this forced
experiment in remote work that basically succeeded
that Silicon Valley is wherever you want to be. HP is moving its
enterprise division headquarters to Houston
and many others are following Oracle founded
in the 70s. Alongside apple and Atari announced
in December that it's relocated its
headquarters to Austin Palantir is relocating to
Denver, Elon Musk moved from Los Angeles to
Austin where Tesla's building its next giga
factory. What really is surprising is the really
major big companies that have put down roots here
are the ones that are leaving, the mom and pops
are going as well. But when they leave, they
take 20 workers or 30 workers with them.
They're not taking 1000s of workers with and
they're not taking Elon Musk. Other major
companies that have moved their headquarters out of
California in recent years include Toyota,
Charles Schwab, Nestle and Jamba Juice. A 2018
study found that 1800 companies left in 2016,
alone, relocating mostly to Texas, followed by
Nevada, Arizona, Colorado, Oregon, and
Washington. This has been a trend for a while, but
it's accelerated now. We have high taxes, high
housing costs, cost of living California is
about 50%, higher than the median state, public
services are not being delivered. So we've never
really had that all that combination occurring, as
we've had in the past, and we've never had
alternative places to move to. So for example,
now in Texas and Austin, Texas, there's a big tech
hub there now that the pandemic has largely made
commute times irrelevant. Moving is easier and
makes more financial sense. Even if you would
look and say I wouldn't found a company in
California now there are huge costs in actually
relocating your company. But those costs are less
when a lot of your employees aren't in the
office anyways may not be coming back. And when
California is saying we might raise taxes
substantially while other states are saying we're
okay, we're not raising them. In a study of more
than 2700 Bay Area workers to have every
three say they'd consider relocating if they could
always work from home, something Dropbox,
Twitter and Facebook have offered with the caveat
that moving out of California could trigger
a pay cut. If I can live in Utah and work for a
California company or if a my California company
can move to Texas and I can stay or move anywhere
else, then suddenly, it's a lot easier to make the
tax and other business cost decisions. The front
of mine decisions. And Edelman intelligence
survey found that 53% of Californians are
considering leaving the state with the desire
highest among millennials, I lived as
understand what the rest of the world was. I
didn't want to be stuck in my tech bubble for the
rest of my life. And that's also one of the
reasons I came to Austin early. I think it's a
reasonable question, say at what point does the
state break we're seeing that tested right now as
we see the remote work environment. Wealthy
influential individuals leaving recently include
Oracle's Larry Ellison, Dropbox CEO Drew Houston
Palantir, co founder Joe Lonsdale, high profile
investors and influential personalities like Keith
Raboy, Tim Ferriss, Ben Shapiro, Peter Atea, and
Joe Rogan, who's leaving California for Texas. I
just want to go somewhere in the center of the
country. Somewhere it's easier to travel to both
places and somewhere we have a little bit more
freedom. Elon Musk also cited
freedom as a major reason for his move to Texas
criticizing California strict handling of the
pandemic. Last May, Musk openly defied California
shut down orders by reopening his plant
facing strong reactions from some politicians.
You're smart enough to build SpaceX, PayPal,
Tesla, maybe we should have sat down with you
and asked you what do you need to be more
successful in California. And then there's all the
other non pandemic related regulations that
come with living in a blue state. Democrats
hold a veto proof super majority in both houses
of the California State Legislature, what some
call progressive policies others see as unfriendly
to business we really become highly regulatory
when it comes to fuel use automobile emissions, all
those types of things water, cap and trade are
to try to keep businesses from polluting too much.
That's an imposition for some folks, all these
things together make it more costly to do
business in this state. CNBC measures states on
more than 60 different metrics in 10 key
categories of competitiveness. In 2019,
Virginia, Texas and North Carolina took the top
three spots. California came in 32nd and came in
last when judged on the cost of doing business.
When it comes to tax structure for business.
The Tax Foundation ranks California at the very
bottom also with only New Jersey ranked lower. what
businesses are finding is that they're able to
create much more value for their shareholders,
they're able to generate higher profits, they're
able to hire very high quality workers at lower
salaries in other places, while tax rates increase
based on how much you make California's top
marginal income tax rate of 13.3% is far higher
than any other state. New York's for example is
8.8%. This is a personal issue. income tax form in
California, I never want to see one of these in
the great state of Texas, nine states, including
Texas have no individual state income tax on
wages. Now, these states all have other taxes that
offset this. To some degree, Texas has high
property taxes. Washington is gone after
businesses with a lot of unique business taxes.
But nonetheless, when you look in California,
that's high on almost every tax across the
board. Even a state that has some trade offs can
look really good. There are groups working on
incentives to keep businesses and innovators
in the state. Even if they're looking to leave
high bay area costs behind you can take that
Bay Area level income and it goes so much farther.
The Greater Sacramento Economic Council launched
a campaign to attract remote workers with
newfound flexibility. I told all three of my kids
are in their 20s If I'm starting my life in my
20s, and I'm picking any place in the world to
start it. I'm picking California on a state
level, California has approved giving more than
$73 million in tax credits to 22. high
growth companies over the next five years through
its California Competes income tax credit. But
the application process is highly competitive.
Still, California's business taxes are some
of the highest in the nation, and certain
cities tack on even more. San Francisco just passed
what they call the overpaid CEO tax where
companies will start paying taxes depending
upon the ratio of the CEO salary to the median
worker at that location. While the super wealthy,
maybe fleeing disproportionately high
taxes, the cost of living comfortably is a
consideration for everyone in California. I
always rented when I was in the Bay Area, I never
had enough money to buy a house there. I bought my
first house here in Austin, you can live 2030
minutes away and have a house for three, four or
$500,000 and have a nice little backyard and a
place for your dog to roam around and a place
for your kid to play having a little bit more
space and you know, land and it just it just feels
right. We also have Scott Shepherd relocated his
family from Riverside, California to northern
Idaho in 2019. All of our major line items across
the board are significantly lower at
the rate of 30 to 40%. You know, we've got $1.98
for a gallon of gas. Shepard runs exit
california.org one of a growing number of online
relocation companies helping people move, he
says about twice as many people have been reaching
out about the service since the pandemic began
lots of restrictions, lots of regulations,
freedoms being taken away. Housing is
impossible in California we are by all estimates,
between three and 4 million units short of
housing. The median single family home in San
Francisco right now costs about $1.6 million. Rent
in San Francisco is easily five to $6,000 per
month. So you multiply that and that means
you're not hiring someone who is technologically
advanced and skill without paying them
150 $170,000 per year, and you simply don't need
to pay that type of salary in Texas. Although
California remains a top destination for people
moving from other countries and rich
transplants relocating from out of state. The
White House reports nearly half of the
country's unsheltered homeless people live on
the streets of California and a growing number of
middle and low income people are moving out of
state with the majority of those leaving
reporting and annual income under $100,000.
Whether they are people at the carwash daggers at
the supermarket attendees at the rest homes, and
what are we doing to assure ourselves that
we'll be able to keep that critical part of our
employment infrastructure those folks at the bottom
because we're toast without it, of those
surveyed by Edelman intelligence 53% cited
housing as the primary motivator for relocating.
Hiring in a state with a lower cost of living also
helps Douglas get her startup off the ground.
It opens up the ability for people to work for
startups, the ability for people to not have to
feel like they're paying their whole life savings
for an apartment every month. And my ability as
a business owner to be able to hire those people
at a very reasonable and fair rate. But a rate
that's not going to be like a Google $450,000 A
year right out of the gate type of thing.
Meanwhile, the pandemic has robbed California of
some positives once used to justify its high cost
of living. When I was looking to raise money
for my startup a few years ago, a lot of
investors in San Francisco said, Well, I
want to be able to sit in on board meetings in
person, you know, I will only invest within a 50
mile radius of San Francisco because I want
to be able to sit on those board meetings.
Well now board meetings are conducted via zoom
and the minutes are distributed through
email. Now, if you can work anywhere, you don't
care, you can go somewhere else that has a
lower cost of living and lower cost of taxation.
So a lot of states not just California but New
York and other states that have historically
banked on offering something unique have to
worry that they're not so unique anymore. With an economy Bigger than many
countries will California feel the impact of big
companies leaving, and with super earners paying
40% of the state's tax revenues? Can California
afford to lose billionaires like musk
one of the richest men in the world, some states
like New Jersey has actually had to amend
budgets when a single billionaire left the
state. California would not be at that point
where Elon Musk leaving California means they
have to amend their budget. But as he leaves
and as companies like HP, and Oracle and others
relocate a significant amount of their
operations, this has a huge impact both
immediately, and in the long term, the
investments they would make them being located
in a different place the employment opportunities.
For those who have left there are new challenges
to contend with in new states, including
resistance to Californians changing
things elsewhere. This is not an invitation to
simply transfer the California to Texas. We
Texans are very inviting the people from
California. But that doesn't mean we want you
to California or Texas. I don't want Austin to just
become the next San Francisco think what we
want is to have Austin's own unique culture, make
startups that work for a while there, I was a
little bit insecure to let anyone know that I
was from California. When I first moved here I had
California plates and I had individuals given me
a nice steady honk the horn behind me on the
freeway to let me know that they weren't happy
that I was in front of them were Shepard moved
in Idaho, as in other states, California
transplants drive up housing prices, people
who live here, they're getting priced out of the
market. I mean, you've got 1015, potentially
even 20 people making an offer on the same
property. And there are certainly things to miss
about the Golden State. My heart still, you know,
has a piece of California and and it's a beautiful
state and it has so many wonderful things about
it. I still have family there. But until I see
things changing statewide, I don't
anticipate things changing anytime soon. Still, a few big names
like Twilio CEO Jeff Lawson and Airbnb CEO,
Brian Chesky. have committed to staying in a
state and specifically the Bay Area. If enough
feel that way that could work. The challenge is at
some point, they'll do the calculation of okay,
what would my books look like I boasts in
California, San Francisco versus where I in Texas.
And many of the biggest Silicon Valley based
companies haven't announced any plans to
leave Google Apple, they are doing so well, that
the last thing they have to think about is moving.
It's very much in their interest to stay here and
get the latest of what's going on mind if you will
these beautiful minds at places like Stanford and
cow. But if California's people are the true draw,
will it lose its edge if enough of them leave?
Some say there's a tipping point at which
the flow of businesses and people out of
California outpaces its incubation of fresh ideas
that entices businesses to come and to stay is a
challenging issue that California faces and
there's really no solution other than to
make the state more competitive in terms of
business costs and taxes in terms of housing
costs. until that's done, California will probably
continue to lose businesses to other
states. For now, big tech stakeholders will watch
to see how legislators handle upcoming
proposals. Some would target tech companies,
specifically taxing data or digital services, one
of the worst things you could do right now is
signal to these companies that are on the fence. If
you stay the taxes are going way up. But that's
the conversation we're having right now. And
there comes a point in which a lot of businesses
are going to say we don't need to be in California
and increasingly we can't afford to be other
proposals could raise the corporate income tax to
more than double the rate in all but one other
state or push the Combined Federal
California top marginal tax rate to a whopping
53.8%. I'm hopeful state legislators will take a
step back and ask themselves, we better not
do this. We're risking the state's economic
future. We should make California a more
friendly state to do business and we don't
want to drive away anymore really incredibly
productive, innovative people. We've had
massively bad recessions we had a $35 billion
budget shortfall in 2001. It costs the governor's
job but we've had those before somehow we come
back but you never know when that time is going
to be the last. Got Miami Beach average
sale prices they're up 72% got prices up double
digits in Boca Wellington Bal Harbour Delray all
across southern Florida it isn't called the
Sunshine State for nothing. Over 230 days of
sunshine per year 600 And some miles of beach
Disneyworld, fancy sports cars a wild night life
and of course, no income tax. My kids nickname
because we live in Orlando. They called me
Disney dad. We were come here because I was always
in a good mood. We didn't stop hearing about
Florida in 2020 From Florida now golden
ticket in Florida it sounds like Florida Well,
you're not alone. Some of Wall Street's biggest
names like Goldman Sachs Elliott Management and
Citadel group however are considering opening
offices in Florida. High profile investors like
Keith Raboy Shervin peach bar and John orange are
already made the move. Even JetBlue is
considering it for years even though people were
talking about moving it really wasn't cool among
the wealthy to pay for it. It's like okay, you
couldn't hack it in New York, go to Florida. Now
you're the chump who stayed in New York. But
it's not just Covid reports a Florida slowly
morphing into a legitimate tech and
financial hub has been loosely talked about for
over a decade. In 2018, Florida solidified its
place in the big leagues when $2.8 billion was
raised in venture capital. That trend has
continued all throughout 2020 I think actually
Miami has the opportunity within the next like five
to 10 years to not only become a tech hub, but
the largest tech hub in the United States. Never
in my three decades of doing this Have I ever
seen the level of economic development
activity. But Florida's economy has long been
marked by low paying tourism and service
sector jobs, inequality and ravaging climate
change. It's ranked near bottom for affordable
housing and health and unemployment insurance
access as much as people understand Florida to be
a beautiful place to go and vacation. There is
almost a synonymous or a parallel understanding
that the state of Florida is backwater hail for a
lot of people, as consumer and employment
behavior shifted during the pandemic quality of
life became a priority. And Florida seemed like
an obvious choice, at least on the outside.
Three Floridian cities were among the top six
choices for New Yorkers fleeing Covid So can
Florida become the next big tech and finance hub? In December 2020 venture
capitalists Dillion Aspro off, tweeted, okay, guys,
hear me out? What if we move Silicon Valley to
Miami? I sort of this like first moment where
I'd kind of I'd say, like, a crack in the
foundation of my like, you know, belief in San
Francisco sort of occurred. Within hours.
Miami Mayor Francis Suarez responded, how can
I help? You know, by time I visited in March
actually had more late stage in particular
investors, let's say Series B and beyond. And
San Francisco did partially because how all
this sort of crossover and hedge funds have
entered into venture capital are deploying
more dollars than even the venture capital firms
are. And so this nexus of power was sort of already
shifting and then a lot of those who moved to
Miami already, both professionally and
personally, sort of had a sudden realization. I was
like, Oh my God. Now being here. I got here.
That happened on a Friday night and by Sunday
night, we you know, put a bid in on a house in the
Design District. DeLeon tweet and eventual move
has fueled momentum that Suarez and other locals
have capitalized on from conversations with
celebrities like David Beckham and tech
billionaire Peter Thiel, to soft banks pledged to
invest $100 million in the city. The notion that
high earning jobs in tech and finance could migrate
down Florida has locals buzzing pre Covid We have
landed maybe 50 or 60 financial service firms.
Many of them had somewhere in the range of
$500 million assets under management. Now we're
seeing companies that have assets under
management. Well over a billion dollars the state
has many draws. Aside from the sunshine it's
welcoming business climate is high on the
list. According to the Tax Foundation after
Wyoming, South Dakota and Alaska, Florida is the
fourth friendliest business state in the
country. No individual income tax and low
corporate and unemployment insurance
taxes. Looking at more than 60
measures of competitiveness, CNBC
ranks the state 12 For for access to capital
after California, New York and Texas was around
tax season. And my accountant jokingly said
to me, why don't you go move to that house you
built down there and stop busting my chops every
April 14. I was like, alright, Castleberry is a
member of Tiger 21 appear membership network for
high net worth individuals. He moved his
family of six to Orlando about six years ago,
lifestyles fantastically obvious, the weather's
great. There's beaches all over the place.
You're on either coast, your airports are
fantastic. You'd be all over the country very
quickly. But really what's happening down
here is really incredible everywhere you drive
around. You see buildings the past few years, we
saw it happening then tack on Covid. And it
just exponentially changed the impact. The
influx of the wealthy has reflected in real estate
sales to South Florida home sales valued $1
Million and above jumped between 40 and 50% in
2020 Compared to 2019. This is a long term move
for these companies. And I don't believe that they
would be signing eight to 10 year leases, with
options to expand. I don't believe that they
would be putting their kids in schools and up
rooting them from their private schools and
public schools in New York, Boston and
Connecticut if this weren't long term, and I
don't believe that they would be buying $20
million homes if this were short term. There's so many amazing,
talented people From from every
standpoint, from marketing standpoint,
from creative standpoint, from leadership
standpoint, and people are always
willing to move if listen, if I was telling
people to move to Nebraska, it might be a
little bit difficult sell. The average
financial salesperson or analyst in Florida makes
about half of what they'd make in New York. That
could be a deterring factor for individuals
choosing between job offers in New York or
Florida. We have a company that we recently
offered, you know, a term sheet here to NRA that
said, you know, for the past three or four years
that they've been building their company
here, it really struggled to find the talent that
they needed locally in Miami, and also really
struggled with being able to import talent. And
they said that over the course of Covid, and in
particular now with Miami tech week flipping,
they're basically importing talent left and
right and they're able to sort of get their pick a
litter of the top tier engineers in the world
migration trends are a strong indicator of
growth. Between 2010 and 2019, Florida received
over 2.3 million more people than it lost the
highest in the nation. The population grew by
nearly 15% In the last decade. But more than
half of that growth came from people aged 60 and
above. In 2020. Contrary to many reports,
population growth was expected to slow down.
According to an independent analyst on
cellphone data migration to Tampa and Orlando
surged, but dropped sharply in Miami. The
overall impact ended up being roughly neutral
creation of millionaires as it happens in New York
City. It doesn't happen in Florida, Florida is a
place where millionaires go to retire. If you're a young person
thinking about you know, where am I going to
launch my career, New York is still you know
where it's at, you know, and that'll be the story
next year. 10 years from now, Florida's economy
has come a long way over the past 50 years. In
1963, it was the 11th largest economy in the
country. Today, it's the fourth just behind New
York, Florida's gross state product, which is
commonly used to measure the health of an economy
also stayed well above the national average in
the seven years prior to Covid. Except for the
dips in the Great Recession, employment
grew in every category until 2022. Health of an
economy is really how the quote unquote bottom is
doing. How are teachers doing? How are our public
sector workers are doing a you will see in
Florida, just like in every other state, that
teachers are going mad, trying to try to provide
some sort of education for children. Parents are
going mad, trying to provide some sort of
lives for their children and live for themselves.
The economy is not healthy, right? The very
few are healthy, just like anywhere else in the
world. Covid was tough on Florida, real GDP fell
2.9%. And despite its lacks Covid closures and
the stories of mass influx of people between
q3 and q4 the state only grew 3.1%. In comparison
to other states with no income tax like Texas and
Tennessee, it's hard to believe that there's this rise of
Florida, Florida has a growing population. And
that's mostly a lower income earning population
that are leaving, you know, the New York area,
the New York metro area because, again, have
enormous affordability problems. You know, while
an immense amount of wealth enters Florida
annually, median income in the state is about
13%. below the national average. Most employed
Floridians work in construction, restaurants
and food services, and elementary and secondary
schools. Inequality is increasing over time. And
the state spends less on public services like
health and education per capita than any other
state in the nation. That has resulted in social
and economic problems like suppressed low and
middle income wages, social fragmentation,
poor health and violence. There's 234 Different
Florida's that people live in. There's a tax
haven, Florida where people can lay out on the
beaches or sit in their pen houses. There's the
Florida of tourism where people could go to Disney
and then there's the state of farm workers who
work from sunup to sundown get shuttled from
school buses from their homes have no protection
usually have no papers. There's a life of black
people who continuously live with no
representation, have the worst jobs in the state.
The best things that you know about Florida and
those beautiful postcards are at the expense of
black people, of immigrant people, Haitian
folks, African folks, these are the invisible
people who make Florida run. Spending more than a
year working from home has reassured companies
that they can cut back on price in New York City or
San Francisco offices while maintaining
revenue. And Florida has benefited from that
shift. But for it to become an epicenter could
take time. It took New York City centuries to
build its agglomeration and economies of scale.
It remains to be seen if and how South Florida can
accomplish that. What really excites me about
Miami is ethos that everybody here is really
excited about right? Pro technology, pro
capitalism, pro immigration, you know,
cheap housing, low cost of living low taxes,
being able to like grow into that I think it's
really important and all the early signals to me,
seem you know, quite positive, but it'll be
entering to see sort of in September and October
you're still seeing this continuous exponential
growth. This is all real. This is not a dipping of
the toe in the sand. We know this
because they're talking to local accountants and
local attorneys and the traffic is very high to
those offices. Wealth wealthy New
Yorkers may soon be getting the highest local
tax rate in the nation that combined city and
state taxes will be 14.8%. In early April,
the New York State Legislature passed the
$212 billion budget for fiscal year 2022. Among
spending cuts includes tax increases on the
wealthy. Others have done the same in New Jersey
raise that top rate from 8.97% to 10.75%. For
those making a million dollars or more revenues
are bleeding and states have to do something
honestly, if I had the choice of taxing the
wealthy more or preventing someone from
dying on the street, I would always choose the
other raising taxes on the wealthiest
contentious while advocates say it's fair
in a way to decrease inequality. Other say
it'll drive the wealthy out, after all, the 1%
are critical to state revenues paying up to
nearly 50% of total state income taxes. There is a
pack mentality to well, when all your friends are
now in Florida, and you're the uncool guy or
woman who's in New York, that is something that
could be a tipping point for why this becomes less
of a trickle, as we've seen the past three or
five years and more of a flood if they leave,
there's a huge fiscal crisis. How do you pay
for all of these services, and that
affects everyone. While tax flight is often
talked about, it's hard to prove empirically,
someone may move for warmer weather or to get
closer to family. And it just so happens that
taxes are lower whether they're moving, what we
do know is that millionaires and
billionaires are highly tied to where they live
and to make money. Consider I can do what I
do from here in South Florida. Having no income
taxes is a great draw for sure. If taxes were your
sole consideration where you were doing business,
you weren't in New York anyway. This again is is
really different. At the early stages of the
pandemic wealthy people left to seek safety not
to save on taxes, and they have now spent over
a year in their second homes and are no longer
bound to their offices in New York City or San
Francisco, or their children's schools.
Raising taxes at the federal junction couldn't
make the decision to officially relocate
easier and that could have serious
repercussions for state revenues will the wealthy
flee cities and states with high taxes. Covid 19 pandemic has
dealt a heavy blow to America's states. In the
early months of the pandemic state lawmakers
were warning of unprecedented fiscal
crisis in nearly every state the Brookings
Institution estimated revenues falling by $155
billion in 2020 and $167 billion in 2021. More
complete data later showed that states ended
fiscal year 2020 in better shape than
initially expected, mainly thanks to federal
aid and the unusual nature of the recession
where wealthy and high wage earners economic
situation only got better. Even so local
government officials have remained weary
limitations on borrowing to fund day to day
operations left states with two options cutting
expenses or raising revenue. When we talk
about economic recovery. Rich people don't need a
recovery. They're actually richer right now
than they were before among spending cuts, a
number of states have either passed bills or
are considering tax hikes on the wealthy to balance
their budgets. I mean, I'm happy to pitch in and
you know, pay the taxes for infrastructure for
education for technology advances, if it's not
going to some of those things. It does make it a
little harder to support. New York's tax increase
may be the most rigorous involving several tiers,
starting for those earning 1 million to $25
million and above, they expire in 2027. Now I
lived in New York, worked in New York, and now I
kind of live in work in Florida. And obviously
one reason I'm doing that is for lower taxes, it is
very easy for financial firms to move to Florida
because they don't have a huge headcount. Those are
the guys, the hedge fund guys who make far and
away more than the Wall Street guys, the biggest
salaries in New York City. And so it doesn't
take a lot to have a big impact on tax revenues,
especially if you've been away, and you say, You
know what, that's what they're gonna do. I'm
just not going to come back. You also can ignore
the evidence of 15 to 20% commercial vacancy rates,
and lower asking rates and generally a picture
that suggests the city's property taxes are going
to be depressed for quite a while at the very best,
despite early reports that California was going
in the same direction in January 2021. Governor
Newsom rejected the policy the state had an
unprecedented year and ended with a budget
surplus of $15 billion, but this wouldn't have
been the first time the Golden State would tax
the wealthy in the 1990s. The tax cut didn't do
anything to millionaire migration, neither in or
out migration was affected. The millionaire
tax in 2004 didn't do anything to millier tax
in 2012, which was larger and small migration
effects to an extent There's an effect is
mostly driven by people sort of finding ways to,
you know, essentially hide their money or find
ways to report less income on their tax
returns. In December 2015, the
wealthiest man in New Jersey, David Tepper
moved to Florida, he pays so much in taxes, that
it's gonna screw up possibly the entire state
budget, it was covered by most media outlets. And
although he never explicitly said why he
made the move, many assumed it was for tax
reasons. Frank Haines, he's a legislative budget
and finance officer to the Senate budget and
appropriations committee of New Jersey says,
quote, we may be facing an unusual degree of
income tax forecast risk. If news reports are true
that the person ranked by Forbes as the wealthiest
man in New Jersey has shifted personal and
business domicile to another state tip removed
back in September 2020. There's just sort of one
way interest and anecdotes and stories
about millionaire migration, because you
know, it fits a story. But, you know, when you
hear the counterexample, people don't know what to
make of it. Young has devoted much of his
career to studying the mobility of high income
earners based on taxes, but he's one of the few
the idea that tax policy affects location
decisions of wealthy individuals has a long
history, but the empirical evidence is
limited. Unless you interview people, as
they're getting on their U haul, or G 650. private
jet to go to Palm Beach for good. You don't know
what their reasons are, and how those reasons
stack up. It's always hard to say, people move
for tax reasons what we can do and what we are
studying is the parallel causality, or coincident
Tality of higher taxes and out migration.
According to young though, it's simple
millionaires and billionaires spend a lot
on trying to reduce their tax burden by hiring
creative accountants and lawyers. They travel a
lot, but they don't move a lot. And taxes are
rarely their main consideration. I always
thought about it, of course, right. I mean,
taxes are important. That's John Kayden. He's
a member of Tiger 21 appear membership network
for high net worth individuals. But really,
I was I was motivated to be in
New York City and develop my career there. After my
my marriage didn't work. And I moved from New
Jersey, into the city, I recognize it would be
additional taxes of New York and New Jersey
around the same at the state level. But I had
the additional city taxes and it was worth it for
me, you know, New Jersey is my home. This is where
I go to see doctors this is, you know, where I
have all my contacts. And I clearly, taxes aren't
going to be the motivational factor
that's going to get me to move or read domicile,
those sentiments are true for most Americans rich
or not more than two thirds live in the state
in which they were born and the one and a half to
2% that do move from one state to another do it
because of losing a job or family. And it's
nearly as likely that those moves are from low
tax states to high tax states of the ones that
do move to a low tax state. It's primarily
folks with low incomes rather than high. The
reason that people are moving is largely housing
prices. And then they you know, oftentimes they
feel like there's a lack of opportunity in that
state. Anecdotal evidence tells a different story.
The Boyd company is a site selection
consultancy, they help clients choose the right
location to operate their business over the past
decade or so. With respect to the exodus of
California. markets, like Phoenix and Las Vegas and
Reno, and Salt Lake City have been big
beneficiaries, the states that hold the line on
taxes, but that aren't in this never ending
gameplan of borrowing, taxing and spending. And
the property and income tax savings for a
relocating worker from San Francisco or Los
Angeles to a no income tax Reno or Las Vegas,
for example, are just enormous. This is one of the
greatest moves to the suburbs from urban areas.
We expect there will be something close to an
exodus from these really large cities where
housing is so expensive for months. News reports
preliminary data and anecdotes suggested that
the pandemic had ravaged state budgets and because
of the mass urban Exodus states should be weary of
increasing taxes on the wealthy States took two
austerity measures and spending dropped by 6%.
In the second quarter. In reality, many states and
cities ended the year in decent shape, especially
with the arrival of President Biden's
American rescue plan. California had a record
year in New York City's budget generated a
surplus of $3.4 billion instead of the initially
projected $4.2 billion deficit. The wealthy and
companies in New York are saying women we actually
were on board, fixing that giant hole we had.
But if we don't have the hole anymore, that's a
very small hole. And you're not cutting and
you're just going to tax us because there's a
moral argument. Well, then we don't want to be
here anymore. This for a relatively small revenue
hole has the potential to become a self fulfilling
prophecy. If you're worried about the revenue
losses because people aren't coming back then
probably the worst thing you can do is impose very taxes
that would make them not come back. As for that
mass exodus, it didn't happen except for March
and April patterns mimic 2019 data collected by a
number of moving companies show that the
biggest inbound states were Idaho North and
South Carolina and Maine and the biggest outbound
states were New York, Illinois, California and
New Jersey looking at regional data, California
didn't experience a pronounced exit either
just fewer people moving in, moves in and out of
those living in the wealthiest zip codes were
similar to other zip codes, except for in the
Bay Area. Their net domestic exits increased
178% for the entire area. And 49% for San Francisco
alone compared to 2019. But it doesn't appear
people were escaping the high taxes nearly 80%
stayed in the state. That's why looking at
plummeting rent prices only tells part of the
story. The reason why there's so many anecdotes
about rich Californians moving away is because
there's an enormous population which
Californians if you want to pull out like a lot of
examples of them doing anything, go to
California, you'll find just an enormous base
population to draw. But you know, who's leaving
California? Are you the lower income folks who
can't afford it? The data aside, there are plenty
of anecdotes of wealthy individuals leaving urban
areas they've been gone for over a year and
making it permanent will likely be easier than
ever before. The question is, will it be enough to
make a serious dent in New York and other states
revenues? That pandemic just kind of sparked me
to really think outside the box and think I can
do this from anywhere even more since I've been
down there. I felt the swell of businesses
moving down here for sure. There is now an
emotional component to what was an existing
financial component for why more one elite and
again, we may find out that it was all overblown
and they didn't leave the challenges it will be too
late.
