For some, Mamdani’s new regime means Texas is on course to take New York’s crown as the financial capital of America.
“It’s hard to remain a financial capital when you despise capitalism. Cities run by people who have never run a business or met a payroll are killing their own proverbial golden goose,” says Chris Furlow, chief executive of the Texas Bankers Association.
The Big Apple has already been suffering from a millionaire problem, one that has proved very expensive.
The state’s share of America’s wealthiest citizens slumped from 12.7 per cent to 8.7 per cent in the decade to 2022 – the most significant drop in the country, according to the Citizens Budget Commission (CBC) of New York City. This decline has cost the state and the city a combined $US13.2 billion in tax revenue each year.
“The root cause is the high cost and expensive tax in New York City,” says Blancato.
Texas’s growing financial power
In contrast, Texas’s share of America’s millionaires has climbed from 8.5 per cent to 9.2 per cent over the same period.
The financial services sector is at the heart of the story. In the last five years, the number of jobs in the industry in New York has grown by just 19,000. In Texas, the number was more than 100,000.
Wall Street’s top earners are turning to an unlikely corner of the country to shelter from Mamdani’s tax raid: Texas.Credit: Bloomberg
Dallas is at the heart of the growth. In September, Texas received Securities and Exchange Commission (SEC) approval for its own stock exchange, the first new exchange approved in decades.
The Texas Stock Exchange, headquartered in Dallas, will launch trading and corporate listings next year.
The big beasts of Wall Street are flocking south.
Wells Fargo opened a new $US570 million campus for 4500 employees in the Dallas suburb of Irving in October. Bank of America is building a new office tower in the city, which will open in 2027.
Meanwhile, Goldman Sachs, which has long had a presence in Dallas, is spending $US500 million on a new campus for 5000 employees, which will be its largest base outside of New York and open in 2028.
JP Morgan has also more than doubled the number of employees working at its 50-acre campus in the Plano suburb since it opened in 2017 and now has 32,000 workers across Texas – more than in any other state, including New York.
Loading
The list goes on. A significant driver for the exodus to Texas is the punishing personal tax rates many bankers face.
Mamdani’s proposals for higher taxes on top earners will build on the fact that New York City already has the highest marginal tax rates on high earners in the country.
The top 1 per cent of earners – which include most of Wall Street – pay 40 per cent of the state’s income tax, says CBC’s vice president of research, Ana Champeny.
With state and city taxes combined, married couples in New York City face a tax rate of 13.5 per cent on combined earnings above $US2.15 million, 14.2 per cent on earnings above $US5 million and 14.8 per cent above $US25m, according to CBC.
In Dallas, by contrast, there is no state or city income tax whatsoever – adding an extra layer of appeal.
Texas has long been a business hub, known more for oil barons than sharp-suited bankers. But that old “yee-haw” image is fading fast, replaced by a more urbane picture.
It is home to more Fortune 500 companies than any other state. Banking and financial services initially moved more slowly to Texas, says Furlow. Now, that has changed.
Goldman Sachs is spending $US500 million on a new campus for 5000 employees in Dallas.Credit: Bloomberg
“Places like New York and San Francisco were historically perceived to be financial capitals. But political weaponisation, out-of-control taxation and affordability for employees have led to the new reality that staying in those jurisdictions is unsustainable,” says Furlow.
“It’s hard to remain a financial capital when you despise capitalism. Cities run by people who have never run a business or met a payroll are killing their own proverbial golden goose.”
Furlow argues that Texas is now where America’s financial power lies.
“You’d have to put Texas high on your list because of its low tax and pro-business environment,” says Blancato.
Mamdani’s tax proposals will certainly make the disparity between New York and Dallas even more stark.
“We’re having emergency meetings where we’re looking at how big our portfolio is in New York,” says William Stern, founder of Cardiff, which lends more than $US2 billion a year to small businesses.
“I do think it’s a war on capital. New Yorkers are already taxed to hell and back.”
Cardiff is based in San Diego but has a portfolio in New York of nearly $US500m. “That’s a lot of money. And when you’re unsure of the political climate, you pull back your bets,” says Stern.
“I think many companies are rethinking whether they want to be there, whether they want to do business there right now.”
Mamdani argues that his corporation tax rise plans will simply bring New York’s tax rate in line with that of neighbouring New Jersey.
But this overlooks the fact that businesses in New York City also pay the corporate franchise tax and a state surcharge to the Metropolitan Transportation Authority (MTA) region.
“If you combine all three of those, business activity in New York is already taxed at 17.44 per cent, which is higher than New Jersey’s rate,” says Champeny.
Texas, by contrast, is known as a low-tax, pro-business state. “We don’t view business as something just to be squeezed to fund political agendas – business is a partner in building thriving communities,” says Furlow.
Texas also has a significant talent pipeline from its universities and is cheaper and more family-friendly than New York. It also has a strong network of well-run community and mid-sized banks, says Furlow.
However, financier and former Treasury official Antonio Weiss says that while the Mamdani’s tax rises would be steep, the mayor-elect’s push to improve affordability in New York should also benefit businesses if they make it easier for families to stay living in the city.
“Today’s young families become tomorrow’s high earners. If young families continue to leave the city as they have in recent years, that erodes the future tax base,” says Weiss.
Loading
But several factors mean the tax calculation matters much more than it would have done in previous years.
Mamdani’s plans come after former governor Andrew Cuomo already pushed through $US4 billion in tax rises on businesses and higher earners in 2021.
Donald Trump’s first term Tax Cuts and Jobs Act also capped the amount of state and local taxes (SALT) that individuals can deduct from their federal tax bills – a move that hit higher earners in high-tax cities and states
On top of this, Covid brought new possibilities for remote work and made people more mobile.
Mamdani’s plans to increase taxes may not go ahead. Both the corporation and income tax rises would require Hochul’s sign-off, even though she has said she does not support them. But there is another lever he can pull: increasing property taxes, which would bring its own problems.
“If costs go significantly higher, where does our footprint go?” says Blancato.
“I don’t think firms will absolutely leave New York City. What I think happens is growth opportunities will be outside of New York.”
Mamdani’s office was contacted for comment.
