CHRIS EDWARDS, CATO INSTITUTE
The exodus of the wealthy from high-tax Connecticut continues, according to the Wall Street Journal:
After four years on the market, and three price cuts, a stately Colonial-style home on Greenwich, Conn.’s tony Round Hill Road is being sold in a way that was once unthinkable in one of the country’s most affluent communities: It is getting auctioned off. Once asking $3.795 million, the four-bedroom property will be sold May 18 with Paramount Realty USA for a reserve price of just $1.8 million.
Seller Isaac Hakim, a real-estate investor, said it is time to move on …. Many wealthy New Yorkers are opting to live in the city, rather than in the suburbs. Some of the wealthiest, like Mr. Hakim, have decamped to Florida in search of more favorable tax rates.
… Owners who paid top dollar for their homes in the Fairfield County town in the mid- to late-2000s are routinely selling for less than they paid. Dramatic price cuts are the order of the day.
… Starwood CEO Barry Sternlicht, a former Greenwich resident, declared it to be the worst housing market in the country. “You can’t give away a house in Greenwich,” he said while speaking at an investment conference. Mr. Sternlicht’s company has since relocated from Greenwich to Miami Beach, Fla.
Data from both the Census Bureau and Internal Revenue Service have long shown that Americans are, on net, moving from higher-tax states such as Connecticut to lower-tax states such as Florida. The 2017 Tax Cuts and Jobs Act (TCJA), which capped state and local tax deductions, has likely strengthened these existing migration patterns.
These patterns are shown in the chart below. Each blue dot is a state. The vertical axis shows the mid-2017 to mid-2018 Census net interstate migration figure as a percentage of state population. The horizontal axis shows state and local household taxes as a percentage of personal income. The red line shows the fitted relationship between the two variables.
On the right, most of the high-tax states have net out-migration. On the left, nearly all the net in-migration states have household tax loads of less than 8.5 percent of personal income.
The TCJA should be a wakeup call for out-migration states such as Connecticut. Such states need to reduce their taxes and trim their government costs. News articles reveal that the wealthy are taking a hit on selling their Connecticut homes. But the whole state takes a hit when highly productive people and their businesses decamp for tax-friendlier locations.
I profile some of the other wealthy expatriates from Connecticut here.
A new study published by NBER summarizes the latest international evidence on tax-induced mobility.
Chris Edwards is the director of tax policy studies at the CATO Institute and editor of www.DownsizingGovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.