In the first federal income-tax year affected by the Covid-19 pandemic, New York State’s share of the nation’s highest-earning filers dropped sharply, relative to the national total.
According to just-released Internal Revenue Service (IRS) data, the number of New York tax filers with adjusted gross income above $1 million decreased to 54,370 in 2020, from 55,100 in 2019. That 1.3 percent decline came even as the number of millionaire filers nationally was growing by nearly 10 percent, from 554,340 to 608,540.
Including the latest numbers, New York’s share of the nation’s income millionaires fell from 9.9 percent in 2019 to 8.9 percent in 2020—down significantly from 12.7 percent in 2010, the year after the state enacted a supposedly temporary higher rate on millionaire earners. This tax hike was repeatedly extended and finally made permanent within a larger package of soak-the-rich tax increases enacted in April 2021 as part of the FY 2022 budget.
Despite the lower number of filers, the adjusted gross income (AGI) of New York’s income millionaires in 2020 increased by about 10 percent over the previous year. Nationally, however, AGI in this category increased fully twice as fast, by 21 percent. As a result, the New York resident share of all income reported by this group of taxpayers also fell, to 10.4 percent in 2020 from 11.3 percent in 2019.
As shown in the chart below, New York’s share of both tax filers and total incomes in the highest reported bracket hit yet another new low for the period in which the IRS began to consistently break out tax return numbers in the $1 million-and-above category on an annual basis starting in 2010. (The agency previously reported state-level millionaire earners from 1997 to 2001, when New York’s share ranged from 10.6 percent to 13.6 percent of the national total).
Based on the IRS data, the only other states experiencing an absolute decline in millionaire income-tax filers in 2020 were Oklahoma and Louisiana. In addition, little to no growth in this filer category was reported in West Virginia (0 percent), North Dakota (1.0 percent), New Mexico (2.9 percent), and Texas (3.1 percent). In all five of these states, a significant portion of the high-income mix is tied to the fortunes of the oil, gas, and coal-mining industries, which slumped badly in 2020. Yet in contrast to those states, New York managed to lose high earners even though 2020 was a highly profitable year for the securities industry, which generates a large share of its highest incomes.
The 50-state pattern
Between 2010 and 2020, the IRS data show the total number of U.S. income millionaires more than doubled, from 282,311 to 608,540. In New York, however, the net increase during these 10 years was just 52 percent.
As shown above, from 2010 to 2020, the only states gaining income millionaires at a lower rate than New York were Louisiana, Oklahoma, West Virginia, and Connecticut. By contrast, the number of filers in the $1 million-and-up bracket grew strongly in all of New York’s other neighboring states. Strong growth in the highest-earning bracket also was experienced by southeastern states, including Florida. With 53,190 millionaire filers in 2020, reflecting a gain of 170 percent over the previous 10 years, Florida moved closer to displacing New York as the state with the second-largest population in this category.
California—home to the nation’s largest population of super-high earners, who as of 2020 were subject to the nation’s highest state income-tax rate—also more than held its own by this measure. Boosted by the profits and booming stock prices in the state’s tech sector, the number of millionaire earners in California surged by 160 percent, including 16 percent in 2020 alone. Larger percentage increases in millionaire-earner populations were reported in most other western states during the past decade.
New York’s loss of high earners wasn’t confined to the $1 million-and-up bracket. Federal data also show a decline in the number of New York residents earning between $500,000 and $1 million. In 2020, their numbers dropped by 2,600 filers, or 2.8 percent, at a time when the nation as a whole was gaining 67,290 filers in that bracket, an increase of 5.8 percent. Louisiana, Oklahoma, and West Virginia were the only other states to lose filers in the $500,000-to-$1 million bracket. Repeating the pattern among its income millionaires, New York’s share of all filers in this second-highest reported income bracket has also decreased since 2010.
Made in Manhattan
Most of the statewide decline in millionaire earners could be traced to New York City, which lost a net 2,221 filers in the $1 million-and-up category in 2020, according to state income tax data compiled by the state Department of Taxation and Finance.** All of the city’s net decline could be traced to its wealthiest borough—Manhattan, which lost a net 2,393 millionaire earners, or more than 10 percent of the 2019 total. The Bronx and Staten Island lost much smaller numbers, while Brooklyn and Queens experienced small millionaire-earner gains of 193 and 24 respectively.
The state’s income tax data suggest that at least some of millionaire-earner decline in New York City in 2020 was due to an accelerated outflow of wealthy households to suburban and rural counties, led by Suffolk (including the Hamptons), which gained 722 filers in the $1 million-and-up category, a 21 percent increase over 2019. Most of the remaining net increase in this category was in the Hudson Valley counties of Westchester (+233), Dutchess (+147), Ulster (+82) Putnam (+28), and Columbia (+19). The Capital District counties of Albany, Rensselaer, Saratoga, and Schenectady gained a total of 141 millionaire earners. (Nassau County, home to the second largest concentration of such earners outside New York City, was an exception to the trend, losing a baker’s dozen).
Similarly, in the next lowest bracket reported in the official tax data, all of the state’s net drop in tax filers reporting incomes of $500,000 to $1 million was concentrated in New York City—mainly Manhattan, where the number dropped by 3,231, or 10 percent. A large portion of the city’s net decline of 3,096 filers in this second-highest bracket was absorbed by Suffolk County, Hudson Valley counties north of Westchester.
The numbers are consistent with anecdotal evidence that pandemic disruption motivated some of Manhattan’s highest-earning households to move to rural and suburban areas, as well as to other states. How many of these moves were temporary will become more apparent with the publication of 2021 tax year data in late 2023.
An eroding base
The continuing decline in New York’s share of the nation’s income millionaires—even in what turned out to be a profitable year for Wall Street—should be a vivid warning sign for Governor Hochul and the Legislature. Even before 2020, the state government had become more dependent than ever on taxes paid by the top 1 percent. In 2021, as part of then-Governor Cuomo’s last budget, the state raised top income-tax rates to the highest level ever, net of federal deductibility. As of 2020, the state data show, the top 1 percent of New Yorkers (with incomes starting at $655,835) reported 32 percent of adjusted gross income but paid 46 percent of income taxes generated by full-year state residents.
During the same period, even as the number of New York resident income millionaires was dropping, the number of full-year nonresident and part-year resident New York taxpayers rose from 70,222 to 73,899 filers in the $1 million-and-up bracket. Millionaire earners living in Florida accounted for the largest share of new full-year nonresident filers; there were 7,218 Floridians who owed some New York income tax in 2020, compared to 6,471 in the previous year.
Nonresidents must pay New York income tax on any wage, salary, or net profits earned from work or business activity in the Empire State—but not on capital gains and other investment- and savings-related income, comprising an especially large share of incomes among the top 1 percent.
** Income tax filer distribution tables released last week by the New York City Independent Budget Office contained slightly different numbers, reflecting minor differences in methodological techniques used by the IBO to analyze the state’s income tax data sample.