The New Jersey area lost thousands of millionaires in 2018, even as their ranks grew worldwide.
A tumultuous year for global stock markets and federal and state tax changes are responsible, experts say.
The New Jersey-New York population center that encompasses New York City, Jersey City and Newark last year lost more than 5,700 of its high-net-worth individuals with liquid assets of $1 million to $30 million, according to a new report from research firm Wealth-X.
Debra Taylor of Taylor Financial Group in Franklin Lakes said she has been advising many of her wealthy New Jersey clients to set up residency in other states. The loss of unlimited state and local tax deductions for the 2018 federal tax year is drastically elevating the metro area’s already high cost of living for some, she said.
“The folks that technically can afford to live here are also the people who have second homes. They could be in Pennsylvania. They could be in the Southwest. Very often it’s Florida,” she said. “The tax situation in those states is much more attractive.”
One client, Taylor said, would have to spend $150,000 more each year to remain a New Jersey resident. By spending half the year outside of New Jersey, that client can avoid the full brunt of the amended federal tax code that caps state and local tax deductions at $10,000, she said.
Some of Taylor’s other clients, who are considered middle class in New Jersey, are finding that their money buys them more in places with a lower cost of living and taxes, such as Florida and Texas.
“These people are doing OK here. They’d be doing great anywhere else, and what I’m finding is those people are relocating,” she said. “They are leaving New Jersey.”
In 2016, New Jersey lost its richest taxpayer at the time: David Alan Tepper, a billionaire businessman, hedge fund manager and owner of the Carolina Panthers NFL team. He and his family left Livingston and relocated to Miami Beach, Florida. His exit caused one state official at the time to warn of a risk to the state budget because of the resulting loss of income tax. Tepper’s net worth is believed to be $11.6 billion.
New Jersey lost more than just millionaires in 2018.
Twice as many people moved out of New Jersey last year as moved in. The migration, the largest of any state, has dropped the Garden State’s population to pre-2013 levels.
Statistics show newcomers skew younger than those moving out. Nevertheless, retirees are leading an emigration that saw the state’s ratio of outbound movers top United Van Lines’ 42nd annual National Movers study.
Where are the millionaires?
Despite the decline in the New York-New Jersey metro area, the number of millionaires is growing worldwide and nationwide.
The number of high-net-worth individuals reached 8.68 million in the U.S. last year. Worldwide, the number increased to 22.4 million last year. The totals represent year-over-year increases of 2.3 percent in the U.S. and 1.9 percent overall.
In 2017, Hong Kong counted 10,010 of the ultra-millionaires. The increase of 31 percent from 2016 saw the city surpass the New York metro area’s total of 8,865.
Outside of the U.S., the most millionaires reside in China, the study found. The country, with 1.9 million millionaires, is followed by Japan with 1.6 million, Germany with 1 million and the United Kingdom with about 900,000.
After the decline, the New York-New Jersey area still accounted for almost 1 million millionaires in 2018. The total equates to roughly one in 21 area residents.
Six of the top 10 cities for high-net-worth individuals are in the U.S., including Los Angeles (576,000), Chicago (353,775), San Francisco (314,055), Washington, D.C., (301,495) and Dallas (298,220).
The highest growth in the top 10 cities was found in Paris. European nations saw significant growth relative to countries in North America, Asia and Oceania. Growth of 4.7 percent in France, 4.9 percent in Germany and 6.2 percent in Italy contested with declines of 1.1 percent in Canada, 1.2 percent in South Korea and 2.3 percent in Australia.
“Hampered by declines in equity markets and relatively slower GDP growth, the U.S. came in fourth in terms of growth in its [high-net-worth] population and their wealth across the top 10 countries,” the report reads.
Following closely behind is Bangladesh, at 11.4 percent. The densely populated emerging market leads the charge for the Asia-Pacific region, which Wealth-X expects to see the highest annual growth rate up to 2023.
Asia is now home to as many high-net-worth individuals as Europe. That number is expected to grow, with 32 of the 40 cities predicted to see the highest growth all in China.
“The region’s HNW population is projected to increase at a compound annual growth rate of 7.6 percent over the next five years, with total net worth trailing slightly at 7.5 percent,” the report states. “At a global level, our forecast shows near identical compound annual growth rates of 6.1 percent for the [high-net worth] population and 6.0 percent for their combined wealth, indicating minimal change to average net worth.”