This Tax Deduction Does Matter

Tax deductions don't matter after the Trump tax cuts? Well, that depends on the deduction.

Although far fewer taxpayers were able to claim deductions for mortgage interest or charitable contributions on their income tax returns for 2018, home sales and charitable donations seemed to survive unscathed.

Because of the expanded standard deduction, use of the SALT deduction for state and local taxes also declined. What's more, upper-income taxpayers who did claim the deduction couldn't claim much – the deduction was capped at $10,000 per couple.

As a result of the cap, income-rich residents of New York, California and other high-tax states now have an added incentive to pull up stakes. According to estimates cited by The Wall Street Journal, a Manhattanite couple with income of $500,000 could save $50,000 in state and city income taxes by moving to a no-tax state such as Florida. Californians with $500,000 incomes could save more than $46,000 by establishing residency in no-tax Nevada.

Connecticut, Merrill Anderson's home state, is feeling the pain. (A hypothetical $500,000 Connecticut couple might save over $32,000 in taxes by becoming Floridian). High income Wall Streeters flocked to Connecticut in recent decades, a migration encouraged by the destruction of the World Trade Center. Banks built huge trading floors in Stamford. Hedge funds flocked to Greenwich.

Then came the great recession. Connecticut's role as Wall Street East began to fade. High-income financial types have been leaving – a few involuntarily. Most have departed in search of friendlier tax climates.

 Like Florida. Especially the Palm Beach area.

Kelly Smallridge, president and CEO of Palm Beach County’s Business Development Board, told FOX Business that more than 70 financial services companies have moved into Palm Beach County within the last three years. Currently, the organization is working with another 15.

“I cannot keep up with the number of companies coming in,” Smallridge said. “Some are headquarters, some of them are regional operations. Many of them, once they get here, within short order establish [Palm Beach] as their home base." 

Firms are primarily coming from three main areas – New York, Boston and Connecticut (specifically Greenwich).

As Greenwich and Connecticut have discovered, extremely-high-income-people aren't willing to remain sitting targets for state and local taxes. They and their advisers are adept at sheltering wealth from taxation. That's something for Elizabeth Warren to keep in mind if she's able to pursue her idea for an annual wealth tax.