Source: Excerpt from the New York Times -
Our top-heavy economy has come to this: One man can move out of New Jersey and put the entire state budget at risk.
Other states are facing similar situations as a greater share of income — and tax revenue — becomes concentrated in the hands of a few.
Last month, during a routine review of New Jersey’s finances, one could sense the alarm. The state’s wealthiest resident had reportedly “shifted his personal and business domicile to another state,” Frank W. Haines III, New Jersey’s legislative budget and finance officer, told a state Senate committee. If the news were true, New Jersey would lose so much in tax revenue that “we may be facing an unusual degree of income tax forecast risk,” Haines said.
The New Jersey resident (unnamed by Haines) is hedge-fund billionaire David Tepper.
In December, Tepper declared himself a resident of Florida after living for more than 20 years in New Jersey. He later moved the official headquarters of his hedge fund, Appaloosa Management, to Miami. … Florida has no income tax.
New Jersey won’t say exactly how much Tepper paid in taxes. According to Institutional Investor’s Alpha, he earned more than $6 billion from 2012 to 2015. Tax experts say his move to Florida could cost New Jersey — which has a top tax rate of 8.97 percent — hundreds of millions of dollars in lost payments.
“If you’re making hundreds of millions of dollars and you’re paying close to 10 percent to the state of New Jersey, you do the math,” said Jon Bramnick, the Republican leader in the New Jersey Assembly. “You can save millions a year by moving to Florida. How can you blame him?”
Beyond the debate on taxing the rich, Tepper’s move is a case study in how tax collections are affected when income becomes very highly concentrated. With the top tenth of 1 percent of the population reaping the largest income gains, states with the highest tax rates on the rich are growing increasingly dependent on a smaller group of superearners for tax revenue.
In New York, California, Connecticut, Maryland and New Jersey, the top 1 percent pay a third or more of total income taxes. Now a handful of billionaires or even a single individual like Tepper can have a noticeable impact on state revenues and budgets.
California had to account for a “Facebook effect” in 2012 and 2013 after that company’s 2012 initial public offering of stock. The offering generated more than $1 billion in revenue — much of that from the chief executive, Mark Zuckerberg, and a small group of company shareholders.
Washington, D.C., had an unexpected $50 million gain in its fiscal 2012 — which helped create a budget surplus — after the death of a local billionaire increased its estate tax receipts.
Some academic research shows high taxes are chasing the rich to lower-tax states, and anecdotes of tax-fleeing billionaires abound. Other studies say there is little evidence showing the rich move solely for tax purposes. Millionaires and billionaires who move from the high-tax states in the Northeast to Florida, for instance, may be drawn by the sunshine, lifestyle and retirement culture, in addition to lower taxes.
Tepper regularly topped state wealth rankings as New Jersey’s richest resident. He also has homes in Miami Beach and the Hamptons. In 2012 and 2013, he also topped Alpha’s list of the highest-earning hedge fund managers, with estimated earnings of $2.2 billion in 2012 and $3.5 billion in 2013. His earnings fell to $400 million in 2014.
Tepper never publicly announced his move to Florida. It became public April 5, when Haines, citing a Bloomberg report, mentioned Tepper’s move in his remarks to the state Senate Budget and Appropriations Committee. In discussing the move, Haines said, “Even a 1 percent forecasting error in the income tax estimate is worth $140 million.”
Tepper’s payments may have even been higher. If Tepper earned $3.5 billion in 2013, his state tax bill could have been more than $300 million, according to New Jersey accountants. Granted, his actual payments were probably far lower because of deferred income, charitable deductions and other accounting treatments. Yet Haines’ comments are believed to be the first time a state official has warned of a budget risk because of one resident’s relocation.