Hedge funds ready to leave New York and move to Florida

Hedge funds ready to leave New York and move to Florida

Photographe: Nisian Hughes / Stone RF / Getty Images

Carl Icahn has already left New York. Dan Sundheim is considering leaving. Larry Fink stays, but worries about his future.

New York was struggling to hold back some of the world’s richest people and the businesses they operate even before Governor Andrew Cuomo and state lawmakers raised taxes on millionaires and billionaires. The biggest names on Wall Street – including Goldman Sachs Group Inc., Apollo Global Management Inc. and Point72 Asset Management – are taking steps to expand elsewhere, particularly in Florida.

The key to the Sunshine State’s appeal is its income tax – it doesn’t take any. In contrast, the richest in New York now face the highest national and local rates in the United States.

“There is certainly an unprecedented migration of high net worth taxpayers from New York, and some of them are taking their businesses with them,” said Timothy Noonan, associate attorney at Hodgson Russ, specializing in tax residency issues. “With prices going up, they are ready to go out.”

When hedge fund billionaire David Tepper moved from New Jersey in 2015 to Miami, his decision sparked dismay over the size of the hole Garden State’s biggest taxpayer would leave in his budget (he returned in 2020, paying roughly $ 120 million to the state last year). Now neighboring New York faces a greater loss of income if an exodus to Florida accelerates among the upper echelons of the financial sector.

Granted, even if some of the rich leave for good, the tax impact would be relatively small compared to the threat of millions of tourists and office workers staying away from Manhattan. Additionally, wealthy taxpayers who fled during Covid-19 may find it difficult to stay away. And at least some of the top 0.1% were already back this spring, as Florida grows increasingly hot and humid.

As locals are busy getting vaccinated and betting on a post-pandemic boom, there is hope that New York City can once again find a way to bounce back from a crisis.

Taxing New York’s Richest

Almost a third of the city’s tax revenue comes from taxpayers earning $ 2 million or more

Source: Independent Budget Office, for fiscal year 2018

But if New York’s crown as the world’s financial capital begins to slip, the first signs will be in the investment business. While prominent bank negotiators and advisers may eventually return to meet clients face-to-face, hedge fund managers can – at least in theory – execute trades as easily from a Palm Beach mansion as a skyscraper. Midtown Manhattan skyline.

Elliott Management Corp., worth $ 42 billion, has seen several of its highest-paid executives leave Manhattan. Jesse Cohn, head of the American activist investing in the company, and Jon Pollock, co-chief investment officer of the company, have moved close to its new headquarters in West Palm Beach. Paul Singer – the founder of Elliott – has also left town, but remains in the northeast.

Other hedge fund titans are also moving to Florida for good. Scott Shleifer, co-founder of Tiger Global Management’s $ 40 billion private equity unit, has bought a $ 132 million home in Palm Beach, where he plans to move. Sundheim, which manages the $ 20 billion D1 Capital Partners, is moving near its new office in Miami.

New Yorkers, wealthy or not, have moved to Florida for decades, especially as they get older. The tax savings resulting from such measures were strengthened in 2018, after the passage of a Republican reform that capped the state and local tax deduction at $ 10,000. The new law meant the wealthy could no longer lower their federal taxes by deducting millions of dollars in state and local levies – a change that made tax-free states like Florida and Texas more attractive.

Some wealthy New Yorkers, like Icahn, moved to Florida afterwards, but the total number of wealthy New Yorkers has remained stable and tax revenues have continued to rise.

“We had high taxes and that didn’t drive out all the multimillionaires,” said George Sweeting, deputy director of the city’s Independent Budget Office. The question is whether that can change, he said. “We don’t know what the limit is. When does it become more than what people are willing to pay? Theoretically, there is a certain point there.

Hedge fund partners who move to Florida, but keep staff and operations in New York City, will still owe taxes in the Empire State. And big companies have a harder time disentangling themselves from the city, said Steven Winter, partner at Grant Thornton.

One of Winter’s clients, a hedge fund manager, just moved to Florida, abandoned the company’s New York offices, and moved all of its employees to remote work. It is “easier to do when you have a staff of only 15 to 20 people”, he said, while it is “more difficult to do for 50 or more employees”.

Icahn, the 85-year-old activist investor who moved from New York to Florida in 2019, appointed a new chief executive for his company this month. He told the Wall Street Journal that his current CEO and CFO are both leaving the company because neither of them plans to follow Icahn to the Miami area.

Taxes are a big part of the talk for small businesses. Take the example of a manager who earns $ 10 million per year. In New York, they reportedly paid more than $ 1.1 million in state and local taxes last year, and more than $ 1.2 million this year after the tax hike. By moving to Florida, the manager avoids this burden each year, as well as the $ 400,000 per year their business owes in the 4% business tax of unincorporated corporations.

NYC takes the lead

With a proposed tax rate between 13.5% and 14.8%, New York would have the highest taxes for millionaires in the country

Source: Tax Foundation, Bloomberg

The savings are even greater for the most successful managers. In addition to increasing the maximum rate for single filers earning more than $ 1.1 million – from 8.82% to 9.65% – the state has added two new brackets: revenues above $ 5 million will be taxed at 10.3% and $ 25 million at 10.9%. Adding these rates to the city’s top rate of 3.88%, wealthy New York residents now face marginal rates of 13.5% to 14.8%, exceeding the top rate of 13.3% in California, previously the highest in the United States.

In approving the tax hike, Cuomo said he “fully” expects the blow to be offset by a repeal of the state and local tax deduction cap, or SALT. “When SALT is repealed, taxes will go down,” he said.

President Joe Biden has not proposed ending the SALT cap, but a bipartisan group of lawmakers are pushing for the repeal. Critics of the effort, including New York Rep. Alexandria Ocasio-Cortez, argued ending the SALT cap would be expensive – would cost $ 88.7 billion a year, according to the Joint Committee on Taxation – and would mainly benefit the rich.

Hodgson Russ’s Noonan estimates that the number of wealthy New Yorkers seeking to leave is about 20 times greater now than after the Republican tax bill passed in late 2017, millennials.

There is still little data on how many people have actually left New York City permanently. But under its progressive income tax system, the loss of even a small number of high-income taxpayers can have a significant impact.

Statewide, taxpayers earning $ 10 million or more paid 17% of income tax in 2018, or $ 8.1 billion. In New York City, around 1,800 people earned at least $ 10 million in 2018 and were responsible for 18.5% of the city’s tax revenue, or roughly $ 2.1 billion.

New York City Revenue Sources

Income taxes are a relatively small share of the city’s $ 95 billion budget

But these sums are relatively small compared to the massive budgets of the city and the state. Property taxes – the city’s biggest source of revenue – rose steadily for decades until Covid-19 devastated property values. In the next fiscal year, the Independent Budget Office expects property taxes to fall 3.3% – the first drop since 1998.

Meanwhile, the relocation of some wealthy New Yorkers barely dented tax revenues. In January, the city predicted that tax revenue would decline 6% in fiscal 2021, to $ 12.7 billion, then rebound 6% to $ 13.5 billion, “a virtual return to levels of the ERA before the pandemic ”. Recent tax collections suggest these projections may be cautious, with the city’s income tax continuing to bring in $ 13.6 billion in the past 12 months starting in February.

Even though Covid-19 threw more than 900,000 New Yorkers out of work last year, incomes held steady as higher-paid workers held onto their jobs and the stock market rebounded.

City also received a ‘bullet in the arm’ of the Biden administration’s $ 1.9 trillion stimulus bill, Finance Commissioner Sherif Soliman said in a March 24 city council hearing. , also citing the city’s mass vaccination campaign as a reason to be optimistic about the future. “While recognizing that we face a difficult road, we are optimistic for a full recovery for the benefit of all New Yorkers,” he said.


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