Cities and states have lost billions of dollars in combined tax revenues during the economic downturn, caused by the coronavirus pandemic. A change that the Trump administration made to the tax code a few years ago, has also diminished some local coffers, because it has caused a slice of super-wealthy residents in high-tax states such as California and New York to move to places with lower taxes, like Florida and Texas.
With rising economic inequality, the exodus of even a fraction of the 1% (and their taxes) can impact everyone who is left behind — especially the most vulnerable, according to Richard Florida. A professor at the University of Toronto’s School of Cities and co-founder of CityLab, Florida explains the long-lasting consequences of wealth flight.
Three Takeaways:
- The 2017 tax overhaul put a cap of $10,000 per year on deductions of state and local taxes that are allowed from federal income tax. Before it was capped, the SALT tax deduction had incentivized high earners to live in cities with high taxes. Although some progressive economists considered the tax write-off a “handout to the rich,” limiting it has blown a hole in the budgets of expensive coastal cities, Florida says. Meanwhile, places with low taxes like Miami and parts of Texas are flourishing.
- Tax policies can make or break cities. And our entire system of taxation — which is based on people living close to where they work — has been upended during the pandemic. As remote work has gained steam, and some of the wealthiest people have relocated from high-tax blue states to lower-tax red states (including the wealthiest man in the world, Elon Musk), Richard Florida expects there will be a lot of political pressure from Democrats on the incoming Biden administration to make fundamental policy changes.
- It’s not all doom and gloom, when it comes to the future of American cities. Florida believes that remote work is a game changer, but it also presents an opportunity to transform central business districts by turning office tower blocks into mixed-use live/work settings with affordable housing options, and thereby create “much more dynamic neighborhoods,” he says.