Numerous Democratic lawmakers warned that the President Trump’s tax cut package, which placed a $10,000 limit on state and local tax (SALT) deductions, would create economic havoc in high-tax states such as New York, New Jersey and California.
New York Gov. Andrew Cuomo was perhaps the most visible blue state critic of the new SALT provision, claiming that it amounts an “economic civil war that helps red states at the expense of blue states.” The sharp reduction in the SALT deduction would drive taxpayers from the state, Cuomo said, damaging local communities while lowering state tax revenues by billions of dollars.
Shortly before meeting with the president this past February to discuss his concerns, Cuomo announced that the state of New York had observed a $2.3 billion shortfall in estimated payments in December 2018 and January 2019 – a shortfall he blamed squarely on Trump and the Republicans in Washington.
But the governor may have spoken too soon. More recent data shows that New York tax revenues actually rose this year, coming in $3.7 billion higher in April compared to the year before. Bloomberg’s Martin Braun said that the increase in revenue was driven in part by timing shifts in tax payments related to the new rules, as well as a booming stock market and the continuation of a decade-long economic expansion.
As some critics pointed out last year, many states are benefiting from the GOP tax overhaul because it broadened the tax base by eliminating some exemptions and limiting deductions. As a result, states have more income to tax. New Jersey, California and Illinois all saw tax windfalls this year, Braun said, despite dire warnings in those blue states about the effects of the SALT deduction limit.
Although state tax revenues seem to be doing just fine in the wake of the SALT new rules, there is one place that may be feeling some pain: pricey blue state neighborhoods. New York City has become a buyers’ market for real estate while the Hamptons is “in a rut,” and Braun said that home prices fell more than 7% last year in Westchester County, an affluent suburb.
High-income citizens in blue states don’t, however, appear to be headed for the hills – or, more precisely, tax-free states such as Florida – in any great numbers. While the real estate firm Redfin says that 13% of people looking for homes in New York and California report they are now considering lower-tax options, migration rates haven’t changed and are now below their pre-recession levels, Braun said. Taxes have less impact on where people choose to live than you might think, said Moody’s analyst Marcia Van Wagner, coming in behind more mundane concerns such as the weather.