High-tax New York has just lost one of its oldest money-management firms to low-tax Nashville, Tennessee—highlighting an ongoing shift of Wall Street jobs, and of high earners in general.

On Wednesday, AllianceBernstein L.P. confirmed it was moving its corporate headquarters and about 1,050 jobs to booming Nashville.  The money graf from Bloomberg News:

While some of the firm’s traditional Wall Street functions—including portfolio management, sell-side research and trading, and private wealth management—will stay in New York, workers from finance, legal, sales and marketing teams, among other functions, will start relocating this year. AllianceBernstein Chief Executive Officer Seth Bernstein will join them in Nashville in 2020, according to an internal memo.

“I see Nashville as a game-changer for AB in terms of our ability to source, develop and retain talent, provide a high quality of life for our employees, increase our competitive edge in an increasingly challenging marketplace,” Bernstein said in the memo.

This is an uh-oh moment for New York’s economy—and for a state budget that has become more dependent than ever on high earners.

Assuming AllianceBernstein (AB for short) paid the average New York securities industry salary of $375,200 per job, the move will cost New York State about $23 million a year in personal income tax receipts.  The Tennessean quoted an AB executive as saying the jobs moving to Nashville will pay an average of $150,000 to $200,000, in which case the state’s annual PIT loss would be more like $11 million.

Either way, in addition to personal income taxes, both the state and city will lose a portion of annual business taxes on net profit earned by AB in New York.

Yes, Nashville isn’t New York. Booming, to be sure—but mid-Tennessee remains geographically isolated, 218 miles away from the closest top 10 metro area (Atlanta). Nashville is hot, really hot, in summer. It’s far from the lights of Broadway, the cultural attractions of New York, etc. But for a high-earning investment banker, the financial allure of Nashville is significant counterweight.

Consider CEO Bernstein himself. Based on his reported salary and bonus of at least $3.5 million, he’s now subject to New York State’s “millionaire tax”—sending at least $280,000 a year to Albany, plus (assuming he lives in the city) $120,000 in city income tax.

In Nashville (when he gets there in 2020), Bernstein’s state and local tax on his salary and bonus income earned at the new headquarters will be … zero.

Until this year that net savings of about $400,000  would have been offset partially offset by a loss of his federal state and local tax (SALT) deductions, reducing the net savings to about $250,000. However, under the new federal tax law, the savings is nearly all gain for Bernstein and for the hundreds of highly paid investment bankers and other professionals who will also make the move.  (To the extent a Nashville- based Bernstein still devotes a block of time to working in AB’s remaining Manhattan office, he will still owe New York tax on income he earns while physically present in New York, but not on capital gains, carried interest or dividends.)

Governor Cuomo’s attempts to get around the new federal law by creating an optional corporate payroll tax wouldn’t help an outfit like AB. As a limited partnership, it’s a pass-through entity whose profits are taxed at the partner level, not a corporation taxed at the entity level. The state hasn’t been able to come up with a deductible payroll tax tailored to pass-through entities.

Yes, some other firm will ultimately sublet AllianceBernstein’s full floor at 1345 Sixth Avenue, and other jobs will fill in all or part of the gap. By national standards, the new tenant will employ highly productive, high-paid people—they’ll have to, to justify the Manhattan rent. But given recent trends, they are unlikely to be top-paying finance jobs. In fact, Wall Street’s New York employment base is shrinking, as Bloomberg News noted:

Even as JPMorgan Chase & Co. plans a new headquarters on Park Avenue, some big banks and money managers are shifting resources by hundreds or thousands of miles to cheaper U.S. cities. In recent years, Goldman Sachs Group Inc. has built up operations in Salt Lake City, while Deutsche Bank AG has expanded in Jacksonville, Florida. Pacific Investment Management Co. just chose Austin, Texas, for a new office as the asset manager seeks to recruit tech workers and broaden marketing in the U.S.

Last year, relocations contributed to the first decline in New York City’s securities workforce since 2013. That left the industry with about 176,900 people in town, or 6 percent fewer than before the financial crisis, according to the state comptroller’s office. The rest of the private sector grew by 23 percent over the same span.

As CNBC’s report noted, AllianceBernstein has taken a hit in recent years, absorbing a decline in assets under management in a business increasingly dominated by the bigger players, “BlackRock and … other asset management giants that dominate the world of exchange-traded funds [and] have trillions in dollars under management.” Those giants seem rooted in New York—for now.

New York’s financial sector remains so enormous and wealthy that the loss of a mid-sized player like AllianceBernstein, which would prompt end-of-world headlines almost anywhere else,  will barely register as a blip in regional economic or tax data. (See P.S. below.)

AB in context

And, of course, taxes aren’t the sole factor in any firm’s location decision. If they were, Manhattan would have been a ghost town long ago. New York remains a global financial capital, a concentration of talent and money unrivaled in the western hemisphere—or, for that matter, anywhere with the possible exception of London.

Market analyst Dennis Hartman called the AB move “a seminal shift” for New York, adding: “If AllianceBernstein is capable of moving and is going to make the move, others shall follow.”

Well, maybe. But predictions that the SALT deduction cap and New York’s higher taxes will touch off an exodus are still more than a bit overblown. In a place like New York, the impact of high taxes isn’t so much obviously and immediately destructive as insidiously corrosive. Like rust on the girders of a bridge, high taxes can undermine the economic structure until it is too late. And SALT, of course, hastens corrosion.

Even in the worst-case scenario, competition from cities like Nashville isn’t going bring about a sudden gigantic calamity, with New York City’s economy sinking beneath the waves all at once, like the Titanic. More likely, the finance sector will become more brittle, more fragile, more at risk of breaking into smaller pieces when the crisis next time inevitably arrives. And then the state and city will find themselves truly broke.

P.S. — First disclosed in the Wall Street Journal on Tuesday, the AB move was duly reported in other business media Wednesday and, unsurprisingly, was front-page news in Tennessee. However, as of Thursday morning it had yet to merit a mention in The New York Times, the Daily News or the Post. (Just imagine the news release from Governor Cuomo’s office if a firm like AB had been induced to move 1,050 high-paying headquarters jobs to New York from Nashville.)

The original post was updated to clarify that Tennessee imposes no state tax on income from salaries and bonuses. The state does still impose a tax, known as the Hall Tax, on capital gains and dividends, which is scheduled to be phased out completely by 2022.  The post also was revised to note that an AllianceBernstein executive has said the jobs initially moved to Nashville would pay an average of $150,000 to $200,000. That range is barely half the average for all Wall Street jobs in New York.