The financial services industry of New York, a significant contributor to the state’s gross domestic product, is under threat, according to a recent study by the Business Council of New York State. The report points to the dwindling population of high-income residents, who are leaving due to high taxes and escalating housing costs, as a significant risk to the industry’s future.
The study underscores that no future success is guaranteed as other states are actively drawing in talent and investment in the sector. The report urges the state to address its tax burden, business environment, and cost of living to safeguard New York’s standing as a national and global finance leader.
In the last three years, the leading states attracting new, high-paying financial services and insurance jobs were Texas, Florida, North Carolina, and Georgia. In contrast, New York was ranked 36th in terms of percentage growth, with a scant growth rate of two-tenths of 1%. The study highlighted that North Carolina and Florida have quickly added jobs in the finance and insurance sector, while New York’s employment growth has lagged behind national trends.
The report also noted the multiplier effect of employment in the finance sector, with each finance sector employee creating nearly three additional jobs in other sectors. Any employment loss, therefore, has a cascading effect on the entire economy.
The study calls for New York’s leaders to address the competitiveness issues threatening one of its most important economic forces – the finance industry. The average compensation in New York’s financial services industry is the highest in the nation, at $309,000 per year, comprising $275,800 in salary and $34,000 in other benefits.
The report also revealed ongoing trends of population decline in New York, with a 2.7% decrease from 2019 to 2022, marking the worst loss among the 50 states during the COVID-19 pandemic. The majority of population loss occurred in New York City and its suburbs, where most of the state’s wealthiest residents reside.
The largest flight of gross income was from Manhattan, with nearly $11 billion in net migration of residents. In 2021, the Empire State saw a net income decline of $9.8 billion that migrated to Florida. The study pointed out that it’s not a coincidence that New York has the highest combined state and local tax rate on residents, according to the Tax Foundation think tank, while Florida has the lowest.
The study suggests that this single competitive factor – taxes – likely plays a key role in the migration of high-net-worth individuals, as they stand to gain the most by moving from a high-income tax state to a low or zero-income tax state.
The report also noted that New York is among a small group of states that impose a tax on estates, colloquially known as the “death tax”. High-wealth individuals are likely to consider this tax when deciding where to live.
The analysis concluded that “forceful action is necessary.” The state must tackle the tax burden, business climate, and cost of living issues that undermine the state’s competitiveness. Failure to do so could risk New York losing its dominance in the finance and insurance industry, thereby jeopardising the health and prosperity of the state’s economy.
