The Lone Star State Cements Permanent Business Advantage

Texas has fundamentally reshaped the competitive landscape for American finance by enshrining unprecedented tax protections directly into its state constitution. Through three ballot measures approved by voters, the state has permanently banned capital gains taxes, estate and inheritance taxes, and securities transaction taxes—transforming what were merely policy choices into constitutional guarantees that future legislatures cannot overturn.

The constitutional amendments represent more than symbolic gestures. They establish ironclad assurances to investors, corporations, and financial institutions that Texas’ zero-income-tax structure is permanent and irreversible without another statewide vote.

“These votes make it clear that Texas’ low-tax structure isn’t just policy, it’s now permanent,” explained Carliss Chatman, a law professor at Southern Methodist University’s Dedman School of Law. “Whereas other states try to lure an Amazon or Facebook with temporary tax breaks or incentives, Texas doesn’t have to because we would never charge those taxes anyway. The incentives here are permanent, and now it’s unconstitutional for the state to start taxing you.”

The three constitutional protections include:

Capital Gains Tax Ban: Prevents Texas from ever taxing profits from the sale of investments, real estate, or other capital assets—a critical assurance for investors and entrepreneurs building wealth through asset appreciation.

Securities Transaction Tax Ban: Bars the state from imposing taxes on financial trades or payroll transactions, effectively ruling out any “Wall Street tax” on buying or selling stocks, bonds, or derivatives.

Estate and Inheritance Tax Ban: Prohibits any future taxation on wealth transfers after death, providing certainty for business owners and families planning multi-generational asset transfers.

These guarantees arrive at a strategic moment. The Texas Stock Exchange secured SEC approval and is scheduled to open in Dallas in 2026, positioning itself as a direct challenger to the New York Stock Exchange and Nasdaq. Exchange executives aim to revitalize competition in public markets and attract companies deterred by high listing costs and regulatory burdens on the coasts.

Over the past 25 years, the number of publicly traded companies in the United States has declined by nearly 45 percent—a trend the Texas Stock Exchange hopes to reverse by offering a more affordable, business-friendly alternative to traditional exchanges.

The timing couldn’t be more significant. More than 200 major corporations have relocated their headquarters to Texas since the COVID-19 pandemic, including Caterpillar, CBRE, Chevron, Hewlett Packard Enterprises, KFC, and Oracle. Texas now boasts the eighth-largest economy in the world, generating substantial budget surpluses and rapid job growth despite—or perhaps because of—its refusal to impose income taxes.

The Perfect Storm Brewing for New York City

While Texas builds constitutional walls around its tax advantages, New York City faces an entirely different trajectory—one that threatens to create a fiscal crisis of historic proportions.

Mayor-elect Zohran Mamdani has proposed the most aggressive tax increase platform in recent New York history, seeking to raise the personal income tax on residents earning over $1 million by 2 percentage points and increase the state’s top corporate tax rate to 11.5 percent—matching New Jersey for the highest in the nation. His campaign estimates these measures would generate an additional $9 billion annually, representing an 11 percent increase in total tax revenues.

The numbers reveal the concentration of NYC’s tax burden. Currently, the top 1 percent of city taxpayers—approximately 34,000 filers—pay 40 percent of the city’s income tax revenue. Under Mamdani’s proposals, this share would likely surge past 60 percent, placing an extraordinary reliance on an increasingly mobile wealthy population.

New York City’s wealthiest residents already shoulder the highest non-federal income tax burden in the United States. The top marginal rate for those earning over $25 million reaches 14.8 percent—combining a 10.9 percent state tax with a 3.876 percent city tax. That’s 1.5 percentage points higher than California and nearly triple the national median of 5 percent.

Mamdani’s proposals would push New York’s combined marginal rate even higher, at precisely the moment when Texas is constitutionally guaranteeing zero income tax, zero capital gains tax, and zero estate tax—forever.

The Competitive Chasm Widens

The divergence between these two approaches creates what financial analysts are calling a “perfect storm” for New York City’s tax revenues and its ability to fund essential programs.

Consider the mathematics confronting high-net-worth individuals and corporations. A Texas resident with $10 million in annual income pays zero state and local income tax. Their New York counterpart pays approximately $1.48 million under current rates—a figure that would rise substantially under Mamdani’s proposals. For someone realizing capital gains from selling a business or investments, Texas offers zero taxation while New York imposes the full income tax rate.

The estate planning calculation proves even starker. A Texas family transferring a $50 million estate to heirs faces no state estate tax. New York’s estate tax, while currently set at state level, could theoretically expand if political winds shift—precisely the uncertainty Texas has now eliminated constitutionally.

Corporate calculations follow similar logic. Texas charges no corporate income tax on most businesses, while Mamdani proposes raising New York’s rate to 11.5 percent, applicable to the state’s roughly 1,000 most profitable companies. For a corporation earning $100 million in taxable income, that translates to $11.5 million annually flowing to state coffers—money that would remain with shareholders in Texas.

These aren’t theoretical differences. Financial services firms have already begun expanding Texas operations beyond traditional Wall Street hubs, drawn by the combination of lower costs, business-friendly regulation, and—now—constitutional tax certainty. Manhattan office vacancy rates, while improving slightly from 23.6 percent to 22.7 percent, remain far above pre-COVID levels as remote work flexibility reduces the advantages of expensive central business district locations.

Revenue Dependency Creates Fiscal Vulnerability

New York City’s fiscal year 2025 budget totals $112.43 billion, with property taxes providing 44 percent of tax revenue—the single largest source at $33.7 billion. However, the city faces projected budget gaps of $5.45 billion in fiscal years 2026 and 2027, rising to $5.74 billion in 2028, according to the Office of Management and Budget.

These gaps exist despite stronger-than-expected tax collections. NYC’s April 2025 personal income tax collections surged $670 million (31 percent) above April 2024, driven largely by estimated payments and final returns from high earners—the precise population Mamdani proposes to tax more heavily and the same population Texas is working hardest to attract.

The city’s heavy reliance on high earners creates acute vulnerability. Income millionaires accounted for 41 percent of New York State’s income tax revenue in 2023. Any significant out-migration of this population doesn’t just reduce revenue proportionally—it can trigger a fiscal crisis, as fixed costs for infrastructure, pensions, and social programs remain constant while the revenue base shrinks.

Critics of Texas’ approach argue that constitutional tax bans could prevent future legislatures from raising revenue during economic downturns or to fund essential services, forcing greater reliance on regressive property and sales taxes that burden middle- and lower-income residents more heavily. Supporters counter that Texas’ growing economy generates sufficient revenue through consumption taxes and fees, pointing to budget surpluses as evidence.

Yet from a competitive standpoint, the debate over optimal tax policy matters less than the certainty each jurisdiction provides. Texas now offers constitutional guarantees that cannot be altered without statewide voter approval—the ultimate protection for long-term business planning. New York, by contrast, faces political leaders actively campaigning on dramatic tax increases, creating uncertainty about future tax burdens even as current rates already rank among the nation’s highest.

Wall Street Confronts an Existential Question

The financial services industry—the bedrock of New York City’s economy and tax base—now confronts a fundamental strategic question. Does the concentration of talent, infrastructure, and institutional relationships in Manhattan justify paying premium costs and accepting tax uncertainty? Or do constitutional guarantees, modern technology, and changing work patterns make Texas an increasingly viable alternative?

The Texas Stock Exchange’s 2026 launch will provide a partial answer. If the new exchange successfully attracts listings from companies deterred by New York’s costs and regulatory environment, it could accelerate the geographic diversification of American finance. The NYSE and Nasdaq maintain enormous advantages in liquidity, market depth, and global prestige—but margins in financial services have tightened, and the pandemic proved that trading, investment management, and corporate finance can function effectively outside Manhattan’s expensive office towers.

For New York City, the risk extends beyond lost corporate headquarters and trading volume. High-net-worth individuals generate tax revenue not only through income and capital gains taxes but also through property taxes on expensive residences, sales taxes on luxury consumption, and the economic activity generated by their spending on services, staff, and entertainment. A single billionaire relocating to Dallas or Houston represents millions in lost annual tax revenue—money that must be replaced through spending cuts, tax increases on remaining residents, or larger budget deficits.

The Policy Paradox

Mayor-elect Mamdani’s proposals stem from legitimate concerns about inequality, inadequate funding for social programs, and the need for affordable housing in one of the world’s most expensive cities. His supporters argue that the wealthy can afford to pay more and that progressive taxation represents both sound policy and moral necessity.

However, the competitive reality remains stark. Texas isn’t raising taxes—it’s constitutionally prohibiting them forever. California, despite its own high taxes and progressive politics, faces ongoing debates about wealth flight to zero-tax states. Florida has joined Texas in aggressively recruiting financial firms and wealthy individuals with similar tax advantages.

New York policymakers face an excruciating choice. Raising taxes on high earners might generate billions in additional revenue in the short term, funding expanded social programs and addressing legitimate needs. But if those tax increases accelerate out-migration to Texas and other zero-tax states, the revenue gains could prove illusory—or worse, trigger a downward spiral as a shrinking tax base forces further increases on remaining residents, encouraging additional departures.

Governor Kathy Hochul has thus far resisted calls for major tax increases, citing concerns about tax flight and economic competitiveness. Yet pressure from progressive lawmakers continues to mount, particularly as budget gaps persist and demands for increased social spending grow.

The Constitutional Advantage

Texas’ decision to embed tax bans in its constitution rather than merely statute creates a qualitatively different form of certainty. Statutory changes require only legislative majorities, which can shift with elections. Constitutional amendments demand statewide voter approval—a far higher barrier that provides businesses and individuals with confidence that tax policy won’t change based on short-term political winds.

This distinction matters enormously for long-term investment decisions. A corporation considering where to locate headquarters, build facilities, or concentrate high-paid employees weighs many factors—but permanent tax certainty ranks among the most valuable. No future Texas governor, regardless of political philosophy, can unilaterally impose income taxes or capital gains taxes. The constitution prevents it.

New York offers no such guarantees. Indeed, the current political environment demonstrates the opposite—a mayor-elect actively campaigning on massive tax increases, state legislators proposing even larger hikes, and a governor resisting but facing pressure from her own party. Even residents and businesses comfortable with current tax levels must wonder: If Mamdani succeeds in raising rates substantially, what prevents future leaders from raising them again?

The Perfect Storm Arrives

The convergence of these factors—Texas’ constitutional tax bans, the Texas Stock Exchange launch, New York’s proposed tax increases, persistent budget gaps, and the flexibility of remote work—creates what economists call a perfect storm for New York City’s tax revenues.

Each element reinforces the others. Constitutional certainty makes Texas more attractive, drawing businesses and residents from New York. Those departures reduce New York’s tax base, increasing budget pressure for higher taxes on remaining residents. Higher taxes accelerate out-migration, shrinking the base further. The Texas Stock Exchange provides infrastructure for financial firms to operate outside New York. Remote work enables high earners to relocate without sacrificing career opportunities.

Meanwhile, New York City’s spending obligations remain largely fixed. Pension commitments, infrastructure maintenance, debt service, and social programs don’t decrease proportionally if wealthy residents depart. The city must either cut services dramatically, find new revenue sources, or watch budget deficits balloon—each option carrying political and practical costs.

The city’s recent financial reports show both the promise and peril of its current situation. Stronger-than-expected tax collections in fiscal year 2025 provided welcome relief, but those collections came disproportionately from high earners filing annual returns—the exact population most mobile and most sensitive to tax policy changes. Council forecasts project continued growth, but those projections assume stable tax policy and no major out-migration events.

Beyond Finance: A Broader Competition

While financial services draw the most attention, the competition between Texas and New York extends across industries. Technology companies, energy firms, manufacturing operations, and corporate headquarters of all types evaluate similar calculations. Texas offers not only zero income tax but also lower costs of living, less regulation, abundant land for expansion, and—now—constitutional guarantees against future tax increases.

New York counters with unmatched intellectual capital, cultural amenities, global connectivity, and the agglomeration effects of having related industries clustered in close proximity. For many businesses and individuals, these advantages justify the higher costs. The question is: For how many?

Each departing company and high-net-worth individual changes the calculation for others. Network effects that once bound businesses to New York can work in reverse—as more firms establish significant Texas operations, the benefits of Texas presence grow while the costs of not maintaining a New York footprint decline.

Conclusion: Divergent Paths with Uncertain Outcomes

Texas and New York have chosen fundamentally different approaches to taxation, business climate, and economic development. Texas bets that constitutional tax bans, minimal regulation, and business-friendly policies will drive sustained growth, generating sufficient revenue through consumption taxes even without income taxes. New York, particularly under Mamdani’s vision, bets that the city’s unique advantages justify premium costs and that progressive taxation can fund ambitious social programs without triggering unsustainable out-migration.

History will judge which approach proves more successful. However, the immediate competitive dynamics are clear: Texas has created permanent, constitutional advantages precisely as New York debates potentially historic tax increases. For businesses and individuals making long-term location decisions, that divergence creates powerful incentives to choose Texas—or at minimum, to hedge by establishing significant Texas operations while maintaining New York presence.

New York City’s fiscal health depends heavily on tax revenues from a small number of high earners and corporations. If Texas’ constitutional guarantees, new stock exchange, and aggressive recruitment succeed in attracting even a modest portion of that population, the revenue impact could be substantial. Budget gaps would widen, forcing difficult choices about spending cuts or further tax increases—each option potentially accelerating the very out-migration officials hope to prevent.

The “perfect storm” isn’t merely possible—it’s forming on the horizon, visible to anyone tracking these trends. Whether it makes landfall with destructive force depends largely on decisions made by mobile wealth holders over the coming years. Texas has rolled out the welcome mat and nailed it to the constitutional floor. New York must now decide whether to compete by maintaining competitive tax rates, or accept the risks of relying ever more heavily on an increasingly narrow—and mobile—tax base to fund the programs that define the city’s character and commitments.

The stakes extend beyond budgets and tax rates. At issue is nothing less than the future shape of American economic geography and the sustainability of progressive urban governance in an era of unprecedented mobility and tax competition. Texas offers a glimpse of one possible future—low taxes, constitutional certainty, and rapid growth. New York’s choices over the next several years will help determine whether its model of high taxes, extensive services, and progressive governance can maintain competitiveness in this new landscape, or whether the perfect storm will fundamentally reshape American finance and urban economics for generations to come.