It might be easy to say that those now fleeing urban areas are doing so out of fear for their health, but that wouldn’t explain why almost all are moving to other American cities like Miami and Austin.
It certainly wouldn’t explain how the very pandemic that has hyper-focused the world’s attention on “staying safe” appears to be accelerating – not causing – these outmigration trends that were already in full bloom before the pandemic.
So why have high-net-worth individuals and companies been leaving arguably the most important financial hub in the world?
The facts reveal a multitude of reasonable causes: New York imposes the nation’s second-highest tax burdens on individuals and the fourth-highest burdens on businesses. The top individual income tax rate is 8.82 per cent in New York while the top corporate income tax rate is 6.5 per cent.
This, alongside with a rising cost of living, makes states like Florida and Texas-who have no state income tax and significantly less corporate taxes in general-more desirable by the day. In fact, Florida and other states with similar tax plans dominated the top ten most moved-in states in 2020.
Outmigration has already cost New York nearly a million residents and around $51 billion in annual adjusted gross income between 2010 and 2017, according to most recent data done by The Tax Foundation.
But it is not just people who are leaving–financial institutions such as Goldman Sachs, Morgan Stanley, and Barclays have moved to less expensive states. For example, Goldman Sachs is planning for its new south Florida hub to house its asset management division–an important division indeed.
It seems that many are following in the footsteps of investment firms like New York-based private equity giant The Blackstone Group, who opened a new Miami division back in October.
A net 70,000 people have left New York during the pandemic, resulting in nearly $34 billion of lost income. Why is this?
Perhaps the answer lies in what it has done for remote work. Although the pandemic is not solely responsible for the rapid digitalisation of the business space, it surely has proven that remote working can equate the traditional workspace in some sectors.
The corporate impact of the pandemic can be found clearly in its acceleration of conducting more business online via platforms like Zoom, Google Meets, and Microsoft Teams.
Most importantly, it has clearly shown us both the benefits and limitations of remote work and how now trend-setting companies like Google are considering a flexible workweek: three days in the office and two days working from home.
This possibility of conducting more business online, combined with the high taxes and cost of living in states like New York, has paved the way for high-net-worth individuals and companies (who have the means to move easily) to migrate even further to states like Florida and Texas.
On the tech side, we see a similar phenomenon happening
California also suffers from the issues that plague New York: high-cost living and high state taxes. Tesla is building a factory near Austin, TX and Elon Musk himself announced that he too is relocating to Austin. Oracle, the software giant, will also be moving its headquarters from California to the city.
The outbound migration from Silicon Valley is not a new thing, but it is curious to see the effect of remote work on tech workers trading in their expensive San Francisco apartments for cheaper and more spacious real estate outside of the California bubble.
The influx of both people and companies will bring a certain level of financial prestige to cities like Austin and Miami who are not used to the hustle-bustle of New York, but will simultaneously leave behind a challenge to New York policymakers to overcome the budget shortfalls coming from the recently diminished tax base.
For states like New York and California facing these issues, the fact that remote work has been forcibly proven to be a decent replacement during this pandemic is a damaging one, mostly because people are realising its effect on the workspace might be for the long-term.
And frankly, moving out has never made more sense.