The Middletown Press (Middletown, CT)
Billionaire says tax plan will further divide nation
Billionaire Ray Dalio said the expected elimination of state and local income-tax deductibility proposed by lawmakers will take a toll on high-tax areas due to lower revenues as high-income earners move out of state.
That’s going to exacerbate the polarity and conflict that’s already prevalent among wealthy and lower-income U.S. taxpayers, who have “typically different values.” The proposed tax incentives will push the rich toward states with lower levies, like Florida, Texas, Nevada, Washington and Arizona, he wrote in a LinkedIn post Tuesday.
Those left behind in high-tax states will see a hit in their property values, while “the reduced population of higher income and higher spending folks leads to reduced spending in these locations,” further depressing their economies, said Dalio, who runs the world’s biggest hedge fund at Bridgewater Associates. The firm is based in Connecticut, one of the high-tax states cited in the post.
The House and Senate are poised to begin working this week on compromise tax-overhaul legislation. The Senate bill mirrors the House legislation by calling for the repeal of state and local tax deductions, while allowing up to $10,000 for property tax deductions. According to a study by the Tax Policy Center, 7 percent of taxpayers would pay more tax in 2019, 10 percent in 2025, and 48 percent in 2027, compared to current law. On average in 2027, taxes would change little for lower- and middle-income groups and decrease for higher-income groups.
On its face, ending socalled SALT deductibility will increase the effective tax rate for high earners in high-tax states by 3 percent to 5 percent, with 1 percent to 2.5 percent of them migrating out of state, he said. State tax revenues will fall about 1 percent, Dalio said.
States like New York, New Jersey and California, which have higher than average incomes and taxes, are the most vulnerable -especially because of the concentration of wealth among high-income earners.
“That means that it would take only a tiny percentage of the population to move to have a devastating effect on the state’s finances,” he said. “To the extent they do move, it would increasingly lead to more prosperous states that are occupied by, and cater to, more rich people and more depressed states that are occupied by, and cater to, more poor people, and increased polarity between them.”