Trump’s new tax law could cost gamblers even if they lose money
President Donald Trump’s new tax law reduces gambling loss deductions and could force some gamblers to pay taxes even if they lose their money.
In her failed 2024 presidential election, Democratic candidate Kamala Harris pledged to maintain the majority of Donald Trump’s 2017 tax cuts, with at least one notable exception. She would have raised taxes on the wealthiest Americans.
Now, the Democratic candidate for New York City mayor is floating around similar proposals. Among other plans, Zohran Mamdani wants to raise the income tax of the wealthiest New Yorkers by 2%.
In both cases, the idea is to make money by taxing the rich and make money by paying for other initiatives. Harris sought taxes from the wealthy to pay the estimated $2 trillion deficit. A democratic socialist, Mamdani wants free city buses and freezes at New York rent.
Taxing the rich had worked before. During World War II, the wealthiest Americans endured the highest tax rate above 90% to support the economy.
But does that work now?
Billionaires may escape from higher taxes
The standard objection is that tax increases for wealthy Americans will drive them away. They will take steps to avoid paying taxes, such as leaving a city, state, or country or moving wealth offshore.
Here’s how your opponent has received Mamdani’s suggestion:
New York Governor Kathy Hochul said he could have refused to raise taxes, but that would urge the billionaires to flee. “I don’t want to lose any more people to Palm Beach,” she told a television interviewer, according to the New York Post.
In a Reuters commentary, financial writer Marty Fridson warned that “if not a chance, he warned about the possibility that many high-income earners would leave NYC to escape the added tax bite.”
The New York Times has framed the rails for quotes from business leaders about escape from New York. Sample: “We might consider closing the supermarket and selling our business,” John Catsimatidis, owner of the Gristedes chain, spoke to the Free Press.
Mamdani’s campaign estimates that a 2% tax on New Yorkers, who make more than $1 million a year, raises $4 billion a year.
Of course, that forecast won’t punish even if enough billionaires leave the city to avoid taxes.
Are the “billionaire tax” warnings exaggerated?
Are the tragic warnings exaggerated? Perhaps, based on a wealth of tax research and implications for migration. But a lot depends on who you ask.
Kamolika Das, local policy director at the Institute for Taxation and Economic Policy, a left and right think tank, said he did not encourage the generally wealthy people to move.
“Tax policy doesn’t actually drive relocation decisions,” DAS said. “They have been claiming this for a long time, and there is very little evidence to support it.”
A 2023 survey by the Institute for Non-Participation Fiscal Policy found that “there is no evidence of a significant tax movement” from New York after the tax cuts.
Main reasons: Top 1% earners travel at a lower rate than other income groups. And when they move, they generally move from one tax area to another.
In 2004, New Jersey raised the highest income tax rate for high-income people by 2.6 percentage points.
“There are a total of 37 billionaires remaining the following year,” said Lindsay Owens, executive director of Groundwork Collaborative, a progressive think tank. “But that same year, New Jersey’s billionaires population grew over 3,000.”
Not all researchers agree.
California lost high earners with taxes
Reuters columnist Fridson cites a study on the nonprofit California Employment Center and the economy. A 2016 voting measure marks a net loss of $5.3 billion in personal income tax from high-income earners that left California in five years after extending higher taxes for the wealthy.
Higher taxes in New York “will raise revenues, and there’s no doubt about that,” said Jared Walczak, vice president of state projects at the nonpartisan tax foundation. But tax hikes “tap out some people,” he said.
Leaving the US via taxes is one thing, Walzak said. Moving from Manhattan to Hoboken, New Jersey is something completely different.
“It’s much harder to leave a country than to leave,” he said, “and it’s more difficult to leave a state than to leave a city.”
Walczak points out that the 2% tax increase proposed by Mamdani is a flat rate of “up to the first dollar” of all income earned by wealthy New Yorkers. The city’s highest tax rate will be raised from about 3.9% to 5.9%.
At that rate, high-income people will “pay more in New York city taxes than most states pay in state taxes,” Walczak said.
The remote work boom in recent years has created a pandemic “Boom Town” filled with refugees from high-tax cities that can generally work remotely.
“I was able to work for a company in New York City, but I don’t know what Austin, Texas, will take me to my residence,” said Therese McGuire, a strategy professor at the Kellogg School of Management at Northwestern University.
A study by the Tax Foundation shows that high tax conditions tend to lose residents to other states, while low tax conditions tend to acquire them. Taxes are one of many factors, including work, weather, quality of life, and the broader cost of living.
Other studies suggest that billionaires tax flights occur, but “only at margins” and negligible tax rates.
“We make decisions about where to place ourselves and our families based on a lot of considerations, many of which are not financial,” Owens said.
