Billionaire Ray Dalio said the expected elimination of the state and local income tax deduction proposed by lawmakers will affect areas of high taxes due to lower revenues as high-income people move Out of state.
That will exacerbate the polarity and conflict that already prevails among wealthy and low-income American taxpayers, who have "typically different values." The proposed tax incentives will push the rich toward lower-taxed states, such as Florida, Texas, Nevada, Washington and Arizona, he wrote in a LinkedIn post on Tuesday.
Those left behind in high tax states will see a blow to the value of their properties, while "the reduced population of people with higher incomes and higher spending leads to a reduction in spending at these locations," further depressing their economies, "said Dalio, who manages Bridgewater Associates, the largest global hedge fund, with headquarters in Connecticut, one of the high-tax states cited in the mail.
The House of Representatives and the Senate are ready to start working this week on tax modification legislation The Senate bill reflects House legislation by requesting the repeal of state and local tax deductions, while allowing up to $ 10,000 for deductions from property taxes According to a study of the Tax Policy Center, 7 percent of taxpayers would pay more taxes in 2019, 10 percent r cent in 2025 and 48 percent in 2027, compared to the current law. On average, in 2027, taxes would change little for the middle and lower income groups and would decrease for the higher income groups.
Apparently, the end of the so-called SAL deductibility will increase the effectiveness of the tax rate for those who earn a lot in the high tax states by 3 percent to 5 percent, with 1 percent to 2.5 percent of them who migrate out of state, he said. State tax revenues will fall around 1 percent, said Dalio. Their estimates underestimate the overall impact of the changes as they do not take into account the consequences on real estate prices and living conditions, he said.
States such as New York, New Jersey and California, which have higher than average incomes and taxes, are the most vulnerable, especially due to the concentration of wealth among high-income people. For example, more than 30 percent of taxes in New York, New Jersey and California come from those who earn $ 500,000 or more, and in those states, high-income taxpayers are a small portion of the population, according to the message .  "That means that it would only take a small percentage of the population to have a devastating effect on the state's finances," he said. "As they move, it will lead increasingly to more prosperous states that are occupied by richer and more depressed states that are occupied by, and serve, poorer, and more polarized among them." .
The existing disparity in local taxes has already pushed several wealthy individuals to look for cheaper pastures. Billionaire Paul Tudor Jones of Tudor Investment Corp. left Connecticut for Florida in 2016. David Tepper, who runs Appaloosa Management, left New Jersey in 2015 for the state of Sunshine, which does not have income and personal income taxes. In 2016, he moved his company.
The threat of exit by individuals and businesses that generate high incomes can exert a significant influence on states that are subject to budgetary considerations. In fact, Bridgewater, of Dalio, which oversees $ 160 billion, received $ 22 million in aid from Connecticut last year, after which other states began to compete as an alternative location for the city's campus. company.
"margin, changes in tax law are going to be significant and bad for high and good SALT locations for low SALT locations," he wrote. "They will be good for businesses and business owners (and fortunately for those who get the money little by little), so companies with low levels of SALT will get a double benefit."