NEW YORK (BLOOMBERG) — Zohran Mamdani’s victory in New York City’s Democratic mayoral primary is sparking yet another round of worry that the rich are about to abandon the Big Apple.
But the city stands a good chance of maintaining its long-time status as a haven for the wealthy, even if it ends up with a self-proclaimed socialist in City Hall. Recent shocks, including a devastating pandemic and expensive federal and state tax changes, haven’t dented New York’s overall wealth, even as a few high-profile billionaires have departed.
More than 34,000 taxpayers earning $1 million or more lived in the city year-round in 2022, according to the latest state tax data, up from about 25,000 six years earlier. Of the world’s 500 richest people on the Bloomberg Billionaires Index, 26 lived in the tri-state New York City area at the beginning of July. That’s four fewer than eight years ago, but their combined net worth has jumped 41% since then, to $469.5 billion.
Mamdani got a boost from concerns about growing inequality and rising costs. He favors raising the city’s income tax on millionaires by two points to 5.9% in order to pay for proposals like free buses and more affordable housing. The city’s elite largely backed former state Governor Andrew Cuomo, who was supported by hedge fund billionaires Bill Ackman and Dan Loeb, as well as Michael R. Bloomberg, the founder and majority owner of Bloomberg LP.
If the wealthy’s tax rise, “you’d likely see a deterioration in the tax revenues that fund the very programs that support lower-income New Yorkers,” said Ed Skyler, a Citigroup Inc. executive who was a former deputy mayor under Bloomberg and considered a run for mayor this cycle. “I don’t know what the breaking point is but I don’t think we want to find out.”
New York Governor Kathy Hochul, who would need to approve any city tax hike, also opposes the idea. “I don’t want to lose any more people to Palm Beach,” Hochul, a Democrat, said in a TV interview. “We’ve lost enough.”
Mamdani has said more revenue is needed to make the city more affordable for middle- and working-class residents, who have been leaving at a faster rate than the wealthy.
“What we need more of is equality across our city and across our state and across our country,” the 33-year-old assemblyman said June 29 on NBC’s Meet the Press, in which he also said he’d prefer a world without billionaires. “And I look forward to working with everyone, including billionaires, to make a city that is fairer for all of them.”
New York City’s population rose 1% last year to 8.5 million, according to Census Bureau estimates, but remains about 325,000 residents smaller than when the pandemic hit in early 2020.
Despite the general migration away from New York, the top 1% — those with incomes exceeding $900,000 — have consistently paid about 40% of the municipal income tax for years, roughly matching their share of total taxable earnings. That “would suggest that there has not been a hollowing out of the highest-earning households,” said Sarah Parker, senior research and strategy officer of the city’s Independent Budget Office.
The ultra-rich mostly stayed even after Trump’s 2017 tax overhaul, which raised the relative costs of living in high-tax areas by capping deductions for state and local levies, as well as a 2021 state-level tax hike, signed by then-Governor Cuomo, that made New York City’s total burden the highest in the nation. The richest city residents can save nearly 15% of their annual earnings simply by relocating to Florida, Texas or other places without local income taxes.
'Fun Place'
What’s keeping the wealthy in New York? One possible answer is that it’s proven to be a fabulous place to get rich, particularly on Wall Street.
“What density does is enable the flow of knowledge, and there’s no industry where knowing a little bit more can make you millions faster than finance,” said Harvard University economics professor Edward Glaeser. “On top of it, there’s the fact that New York is kind of a fun place to be a billionaire.”
Nonetheless, many of New York’s richest residents are alarmed by the idea of Mamdani winning in November. “An anti-capitalist Mayor will destroy jobs and cause businesses and wealthy taxpayers that have enabled NYC to balance the budget to move elsewhere,” Ackman wrote in a post on X two days after the election.
Recent academic research, as well as real-life examples from the UK, Latin America and elsewhere, show rich taxpayers do tend to leave town when taxes get too high. A 2023 study by economists Enrico Moretti and Daniel Wilson found state-level estate taxes prompt billionaires to move. Their 2017 study of star scientists found something similar, as did a paper published in December on rich households in Switzerland.
In the UK, a change in the tax rules on non-domiciled, or non-dom, residents who originally hail from overseas has prompted a surge in wealthy individuals relocating. The British government is expecting the changes will bring about £33 billion ($45 billion) in extra taxes, but dissenting voices are giving far harsher predictions on the hit to jobs and economic growth.
It’s common for high-earners to live and work in the city with a goal of eventually moving somewhere with lower taxes, said Yvonne R. Cort, a partner at law firm Capell Barnett Matalon & Schoenfeld, who specializes in helping former New Yorkers in the not-always-easy task of proving their new residency to auditors. “Their long-term goal is to be outside New York,” she said, so “they have a second home with the idea of making it their retirement home.”
Moretti, an economics professor at the University of California, Berkeley, said New York could be especially vulnerable because residents and businesses can escape city tax hikes merely by moving to the suburbs. “It is easier for people to leave a city than a state,” he said in a email, predicting “significant losses of high-income taxpayers” if state lawmakers allowed municipal tax increases.
That said, Moretti’s research, as well as New York’s own experience, show higher taxes don’t necessarily drive away enough rich taxpayers so that revenue falls.
Migration Slowed
For now, recent data suggest migration away from New York has slowed, and the city’s richest continue to get even wealthier. Tax collections were up almost 9% through the first 10 months of the fiscal year, according to a May city comptroller report, driven by a surge in revenue from levies on income, especially from dividends, capital gains, partnerships and financial industry bonuses. Glaeser, however, worries what would happen “if you had some lean years for finance.”
With 23 of the world’s richest people, New York State is home to the second-most members of Bloomberg’s wealth list after California. The Golden State’s 51 richest residents are worth a combined $1.3 trillion despite a top state tax income tax rate of 13.3%. Florida has 12 members on the index, while 22 live in Texas.
Some rich New Yorkers have already ruled out moving if Mamdani wins. “I’m not going anywhere,” said Peter Borish, chief executive officer of Computer Trading and a founder of the Robin Hood Foundation.
“Our job as business people and philanthropists is to help bring everyone to the middle,” said Borish, adding he hopes to meet with Mamdani. “I don’t know if we’re going to do it, but we’re going to try.”
The key factor for the next mayor is “quality of life issues,” Borish said. Harvard’s Glaeser agreed, arguing the next mayor’s skill as a manager will ultimately be more important than their policy positions on taxes or anything else.
“Everything comes down to the ability to deliver the core services that make the city livable,” he said.
--With assistance from Jack Witzig and Ben Stupples.
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