Hochul’s Comments in Perspective
Not to beat a dead horse, but the Governor of New York’s comments to Politico the other day are worth reviewing, if only for what they reveal about the mental state of certain political leaders. Viewing productive, successful businesses as “captives” to the tax code doesn’t strike us as the basis of a healthy relationship.
It’s also not the basis of a healthy economy. As evidenced by this nice map, New York is bleeding taxpayers and revenues and, judging from the Governor’s remarks, that’s not likely to change anytime soon.
So what did she say? Here are some highlights:
What I want to make sure we are smart about is having a system in place where it’s not just taxing for the sake of taxing.
Amen to that. The only problem is the state has not exactly been practicing what the governor is preaching here. Rather than the “smart” system described, New York is increasingly relying on a shrinking pool of high earners to fund an ever-expanding set of obligations.
And being conscious of the fact that I need people who are high-net-worth to support the generous social programs that we want to have in our state. Right?
Most states rely on their upper-income taxpayers for most of their revenue, so the financial challenge here isn’t unusual. What’s striking, however, is how one-sided her perspective is. “I need them” isn’t the same as “we need each other.” Exactly what is New York offering these taxpayers in return for all that revenue? This is also the opposite of what the Governor was saying just a few short years ago.
Now, there are some patriotic millionaires who stepped up. Okay, cut me the checks. If you want to be supportive, but maybe the first step should be to go down to Palm Beach and see who we can bring back home because our tax base has been eroded.
This paragraph has been misinterpreted. The Governor isn’t saying to be patriotic, you need to write her a check. There really is a group of trust fund babies self-labeled the Patriotic Millionaires whose whole schtick is they are willing to pay more, but only if everybody has to pay more. Rather, the Governor is making clear that this group’s vague promise of revenues that never materialize isn’t helpful – cut her a check now or convince all your transplanted friends in Palm Beach to return to New York. Don’t hold your breath for either outcome.
I have to look at the fact that we are in competition with other states who have less of a tax burden on their corporations and their individuals. And I would say remote work changed everything. There were people who could only work in an office in Manhattan or work in New York State and they were captives to our state. They were going to stay.
Back to the unhealthy relationship analogy, wouldn’t you want to make New York a place where successful taxpayers and businesses want to reside?
They’re not going there because they have a nicer governor, I know that for sure, but they’re going there because of the tax rate. We have to be smart about this. But we can fund what we want to fund with what we already are taking in.
How many times have we been assured that taxpayers don’t care about high rates and they won’t move their businesses and residences to avoid them? That is obviously not the case – we are seeing a mass migration play out in real time, and we have new economic work outlining why past research missed this narrative entirely.
So New York is at the center of the battle over public budgets and private wallets. It’s a battle that is headed to DC soon, regardless of who is in office. When it gets here, our public officials will have a choice – treat a productive segment of our economy as captives waiting to be fleeced or recognize that when it comes to sustainable tax policy, a broad base coupled with reasonable rates is the only option.
Talking Taxes in a Truck Episode 48: What Are They Thinking Out There?
On our latest episode we’re joined by Jack Salmon, Research Fellow at the Mercatus Center and contributor to The Unseen and Unsaid. Jack helps us walk through how the aggressive tax policies being considered in California and Washington State will likely shrink the tax base in those states as high earners relocate, investment shifts elsewhere, and revenue projections miss the mark. We also touch on the federal tax outlook and some of the massive fraud being uncovered in federal healthcare programs.
California Wealth Tax Misses the Target
A new paper out of the Tax Policy Network on the “one-time” California wealth tax initiative highlights just how untethered the proponents’ revenue estimates are from reality. The assumptions driving the initiative are so thin, they call into question whether this initiative is designed to raise revenue, or simply punish rich people.
Here’s the key graph:
Where do the estimates come from? The group of economists who helped construct the wealth tax proposal used a back-of-the-envelope calculation to estimate how much revenue it would raise: they started with the Forbes billionaire list to guesstimate how much wealth is held by the targeted billionaires, subtracted 10 percent for tax “avoidance and evasion,” and multiplied by 5 percent. The result was a revenue estimate of nearly $100 billion.
A competing analysis using real analytic tools showed a much smaller tax haul — negative, in fact, if you include the anticipated deterioration of the income tax base.
Who’s right? You decide.
Here’s the complete analysis from the wealth tax advocates, which includes our old friend Emmanuel Saez:
The Forbes billionaire list has 213 California billionaires with a collective wealth of $2.182 trillion (which is 26.6% of the US wide $8.189 trillion owned by all 938 US billionaires). A 5% tax on $2.18 trillion raises $109 billion. Factoring in 10% of tax avoidance and evasion leads to a scoring of $99 billion that we round to $100 billion for simplicity.
That’s it. This is the analysis that is going to cost California billions, whether it passes or not, and they couldn’t even be bothered to toss in a couple of footnotes?
Contrast those three sentences with the work of Rauh, et al. They also start with the Forbes list but then adjust to reflect residency and other factors. They then:
- Subtract the value of residential real estate (exempt under the proposed tax).
- Subtract those billionaires who have already left the state.
- Subtract the anticipated behavioral response of the targeted billionaires, including relocation, tax planning, and avoidance.
The result is a projected revenue gain of just $40 billion, or less than half what the voters of California are being promised. But that’s just the wealth tax side of the analysis. What impact does the resulting migration and tax avoidance have on other taxes?
The authors estimate the income taxes paid by the targeted billionaires and then calculated the net present value of the taxes no longer paid by those who leave the state or otherwise change their behavior. Applying “reasonable assumptions about discount rates, mobility effects, etc.,” they conclude that the next present value of the wealth tax could be negative.
So California’s one-time wealth tax could result in a permanent loss of revenue to the state. Instead of helping reduce the state’s budget deficit and lower the burden on the middle class, the initiative will do the opposite. Revenues from the rich will fall and the middle class will be left to pay the difference. Meanwhile, all those wealthy taxpayers will be sunning themselves in Florida and Texas, paying no income tax whatsoever, and not being punished at all.
SALT Parity State of Play
SALT Parity State of Play
Adoption of the Working Families Tax Cuts Act last July was a huge win for Main Street – a win that included locking in $20 billion of annual savings through our SALT Parity efforts. With the SALT cap now permanent, those parity laws enacted in 36 states are more important than ever.
Just as important – making sure the benefits are broad and stay in place. That means making certain that states and other jurisdictions don’t game the policy, that the laws are working as they should, and that we complete the map. Here’s the state of play on those three fronts:
State Games
Massachusetts has a PTET election, but it pairs the election with a 10 percent haircut of the state’s PTET tax credit. That haircut effectively diverts tax benefits from pass-throughs (and the federal taxpayer) to the Massachusetts state coffers. Not good.
Now the new Mayor of New York City is proposing to do the same with the NYC PTET credit, only on a whole new level. Under the proposal, New York City businesses would see their tax credit – which exists alongside the statewide credit – reduced from 100 cents on the dollar to 75 cents, a change the Mayor’s office estimates would raise around $700 million. That’s a massive tax hike, and one that would hit eligible businesses of all sizes, not just “the wealthy.”
Fortunately, Mamdani cannot accomplish this unilaterally, since modifying the credit requires Albany’s approval. But there’s a deeper concern with the precedent being set. Massachusetts showed states they can erode SALT Parity by quietly pocketing a slice of the benefit, creating a template others may be tempted to follow.
Sunsets & Fixes
Our SALT Parity bills include three key components – an election to pay at the entity level, offsetting credits or income exclusions to avoid a double tax, and a recognition of the credits or income exclusions offered by other states.
Beyond that common core, every Parity bill is different, reflecting the unique nature of each state’s tax code and the preferences of its legislators. We attempted to summarize those differences in this table.
One key difference is that a handful of states sunset their Parity laws to coincide with the original 2026 expiration of the federal SALT cap. S-Corp advised against those sunsets, as the election can be beneficial even without the SALT cap, but we didn’t always prevail. By our count, six states sunset their laws. Here’s the latest on those states:
- California (2026): As part of its 2025-26 budget, extended its SALT Parity law through 2030.
- Illinois (2026): Its SALT Parity law was made permanent thanks to legislation passed in December of last year.
- Virginia (2026): Last year’s budget bill extended the expiring provision, but only for one year (through 2026). The state will need to take up the issue again this year.
- Oregon: SB 1510 – which extends the state’s “PTE-E” program – was approved by the legislature and currently awaits the Governor’s signature.
- Minnesota (2026): Legislation (HF 3127 / SF 3405) would revive the state’s defunct (expired at the end of 2025) SALT Parity regime through 2029. The bill enjoys bipartisan support, but remains stalled in the House due to larger divisions.
- Utah: No legislation introduced yet to reinstate the expired provision
Completing the Map
Finally, not every eligible state has enacted their SALT Parity reform. Maine, Vermont, North Dakota, Delaware, and Pennsylvania are the last holdouts, leaving pass-through businesses in those states at a real competitive disadvantage – a disadvantage that’s increasingly hard to justify as the reform effort has matured. Two notable developments in those states:
- Pennsylvania: SB 659 was introduced last session and its sponsor, Senator Mastriano, has committed to reintroducing it this year.
- Maine: LD 191 was introduced last year and remains pending.
So some movement, but really a remarkable lack of alacrity for enacting a policy that puts money in the pockets of local businesses without costing the sponsoring state anything. Meanwhile, nothing is happening in the remaining states. Apparently, pass-through businesses in Vermont (21 thousand), Delaware (45 thousand) and North Dakota (30 thousand) just don’t count.
Conclusion
So that’s the latest on the SALT Parity front. We’ll continue working with lawmakers in the holdout states to enact additional SALT Parity bills while also working to ensure existing regimes remain intact and operate as intended. With the federal framework now settled, it’s time to finish the map, block attempts to hijack the policy, and lock in this relief for good.
Washington Post vs. Washington State
Over the weekend, the Washington Post offered a welcome dose of clarity in the debate over who really bears the burden of higher taxes. As the Board put it:
Taxing ‘the rich’ would affect most private-sector workers, who are employed by pass-throughs but are not rich themselves. Jacking up taxes on small employers isn’t going to help make the American economy fairer or more competitive.
This is a big issue that we touched on just last week. S&P 500 companies employ roughly 18 percent of the U.S. workforce, while privately-owned firms employ nearly 80 percent.
Most of those businesses are organized as pass-throughs that pay tax at the individual rates on their business income. You can say you’re taxing the rich, but really you’re just taxing the job creator down the street.
So welcome, the Washington Post, to the fight for Main Street!
Washington State, meanwhile, is moving in the opposite direction. Long a home for business-friendly tax policies, the state appears to be racing to see if it can outpace California, New York, and New Jersey for the title of the worst place in the country to do business.
What are they up to? Check out this laundry list of punitive tax hikes the state has embraced in just the last couple of years:
- The state just increased its estate tax rate to the highest in the country. Washington’s estate tax exemption, meanwhile, is far below the federal threshold, so some solidly upper-middle income taxpayers will now be subject to very high estate tax rates. For those residents who do trip the federal thresholds, their combined marginal estate tax rate is also the highest in the country at up to 75 percent.
- The state also has a newly minted capital gains tax, which starts at 7 percent and jumps to 9.9 percent for gains over $1 million. The Washington State Supreme Court in 2023 ruled the tax was constitutional, clearing the way for it to go into effect at the start of last year. At 9.9 percent, Washington state only trails California, New Jersey, and New York for the highest rate in the nation.
- The state expanded its tax on investment income in other ways. The state’s Department of Revenue and Supreme Court joined forces to overturn a long-standing exemption of investment income from the state’s gross receipts (B&O) tax. The 2024 decision, Antio, LLC v. Department of Revenue, results in a new tax on investment income originating in Washington state. In 2025, the state legislature both increased the B&O tax rate and codified the court decision.
- The state also expanded its already high sales taxes to include many online services and products.
- Finally, Olympia is eyeing a “millionaires tax” – a 9.9 percent levy on individual income above $1 million annually. The state Senate passed the measure in February and the Governor has expressed support. While it faces near-certain legal challenges – the Washington Supreme Court barred graduated income taxes in 1933 and voters passed an initiative in 2024 prohibiting personal income taxes – the Antio decision suggests the court will view this challenge creatively too. The new tax is expected to pass and survive any legal challenge.
This just in – Jeff Bezos is now a resident of Florida.
Seriously, view this onslaught from the business owner’s perspective. You already pay the existing gross receipts tax, only now at a higher rate. You have to collect the newly expanded sales tax from your customers. You have to pay federal income taxes (lower, thanks to the Working Families Tax Cuts), but now those likely include a new 9.9 percent state tax. If you sell the business, you’ll pay a combined capital gains tax of around 35 percent. And when you die, the state and federal governments will seize up to three-fourths of whatever you have left. Here’s the local FOX affiliate on the challenge:
Business owner Nikhil Singhal is calling it quits over the state’s new $9 billion tax package passed earlier this year by lawmakers in Olympia. “The math simply doesn’t add up for us to continue doing this business,” Om Spark owner Nikhil Singhal said…. Singhal says the latest increase in taxes is hitting him in several different new ways, including an increase in the business and occupation tax and an expansion of the retail sales tax that now captures online digital ads.
As noted above, these sorts of policies don’t just affect business owners, they hurt workers too. More from Fox:
Back in October, FOX 13 spoke with Josh Dirks, who shut down Project Bionic in Seattle’s Ballard neighborhood. Dirks was forced to lay off his staff at his social media digital ad agency after 16 years in business. He says the latest tax increase was the last straw and he could not keep his business viable.
So as the Boss warned us, it’s one step up and two steps back. The Washington Post has newly embraced Main Street and the practical benefits of reasonable tax policies, while Washington state has lost its collective mind and is telling the family business community to pack up and leave, you’re not wanted here.
Spoiler alert – that’s exactly what they’re going to do.