As the dust clears from lawmakers’ departure from Albany, it’s worth asking what they did to respond to a rising threat left in the wake of Covid.

The remote work revolution—stimulated by the pandemic—untethered employees from high rises and office parks, converting cubicle dwellers to digital nomads suddenly freed to work and live where they chose. The danger for New York is that a more mobile professional class will increase the speed and scope of New York’s ongoing out migration in which 1.6 million residents (about the population of West Virginia) left the state between 2010 and the onset of the pandemic.

Prior to the pandemic, the screws were turned on prosperous residents of New York and other high tax states by the 2018 federal tax reform legislation that capped state and local tax (SALT) deductions, making citizens feel the full brunt of non-federal tax burdens, and providing them a fresh impetus to go where they could keep more of what they earn.

In a study issued last October, New York was ranked 48th of 50 states in the Tax Foundation’s annual state business tax climate index. The Empire State’s overall tax regime was rated far more inhospitable than that of Florida (ranked 4th), and New Hampshire (6th), also lagging neighboring Pennsylvania (27th) and Massachusetts (34th). Only California and New Jersey were rated worse.

So it’s not surprising that corporate office units, as well as individuals, were leaving the state in the years prior to the pandemic. Currently, legendary financial services giant Goldman Sachs is encouraging asset management division employees to transfer to Palm Beach. If the firm ever decides to relocate its corner offices to Florida, other major financial services firms could follow. Meanwhile, those executives from Goldman and other firms who do decamp for Florida and other low tax havens could pressure their bosses to pull up headquarter stakes from Manhattan to free high earners based out of state from New York’s long arm of taxation, which duns the income of those employed by firms based here.

Mckinsey report issued in December determined employees in the industries that power much of New York City’s prosperity and employ many of its highest-earners—finance, insurance, management, professional services and IT—could spend most of their time working remotely with no loss of productivity. According to Mckinsey:

More than 20 percent of the workforce could work remotely three to five days a week as effectively as they could if working from an office. If remote work took hold at that level, that would mean three to four times as many people working from home than before the pandemic and would have a profound impact on urban economies, transportation, and consumer spending, among other things.

A more mobile workforce ups the ante in the ongoing competition among the states to keep resident companies and employees in-state, and to entice non-residents looking for greener pastures to relocate. That New York and other high tax states were faring poorly in this competition prior to the pandemic, with high-earning residents taking their income and wealth elsewhere, is a red flag to elected officials that the price paid for inhospitable tax policies could spike in a post-Covid world of more mobile work.

So, what did Albany lawmakers do to address this heightened flight risk during the just-concluded legislative session?

They doubled down.

The Governor and the Legislature compounded the disparity between New York and no tax states like Florida by raising individual and business tax rates. And Senate and Assembly members pursued new legislative mandates that threaten to make it even more costly and complicated to conduct business in the Empire State.

Even after it became clear that initial projections of pandemic-induced revenue losses were vastly overestimated—and that the tax hikes on individuals and businesses proposed in the Governor’s January budget proposal were therefore unnecessary—Cuomo and the Legislature agreed to $4.3 billion in tax hikes in the April budget. These hikes will now finance state spending increases beyond those enabled by the $12.7 billion in no-strings aid the state received under the American Rescue Plan. Per the budget deal, New York City’s top earners—those who haven’t fled to low tax havens like Florida—will now pay the highest marginal income tax rate in the nation.

Also done this year: the Legislature and Governor agreed to strike the word “incorrigible” from the Family Court Act since, when used to describe a child, it implies they are beyond correction or rehabilitation.

The term may better apply to the state’s elected officials.

About the Author

Peter Warren

Peter Warren is the Director of Research at the Empire Center for Public Policy.

Read more by Peter Warren

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