The state legislature will soon decide if New York will have the 14th-highest income tax rate in the U.S., the second or stay at seventh. In doing so, it will also dictate whether the combined local and state tax rate for the city’s top earners will nearly match California’s sky-high 13.3%, imposed on anyone making more than $1 million. And it will gamble on whether high income taxes send rich people fleeing to states with low or no taxes on earnings.
This is a story of three options, each with predictable political advocates. New York’s “millionaires tax” is scheduled to expire at the end of the year, which would drop the highest rate to 6.9%, or 14th in the nation. This is preferred by the state’s Senate Republicans, and the Partnership for New York City last week intensified its support for it.
12.7%—Combined city and state income-tax rate for NYC’s top earners
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Gov. Andrew Cuomo wants to keep the millionaires tax at its current rate—and the $4 billion a year it generates. That would leave New York with the seventh-highest rate in the nation.
Assembly Democrats have proposed a soak-the-rich levy that would raise the tax to between 9.3% and 9.8% for those making between $5 million and $100 million. Anyone making more than that would pay 10.3%, although, as the Empire Center for Public Policy points out, no one knows how many taxpayers would be affected. The center’s E.J. McMahon said he thinks the number is fewer than 100.
The Partnership for New York City says relying on so few to pay so much is risky, noting that the top 1% of state taxpayers contribute 42% of all income tax revenue.
The partnership also zeros in on the impact in the city, where the top local rate of 3.9% makes the millionaires tax especially onerous. The 12.7% combined rate is about the same as in California and almost 3 percentage points higher than it is anywhere else. Another way to consider the numbers: Taxpayers in the top bracket pay more than half of any amount they earn above $2 million to the state or the local government, before deductions.
Progressives argue that this is the perfect time to go after the wealthy, because President Donald Trump and the Republican Congress plan to give the rich a big federal tax cut. Congress also might eliminate the deduction of state and local taxes that reduces a household’s federal liability. Doing so would make states with no income tax, from Washington to Texas to Florida, even more attractive for relocation.
But so far there is no convincing evidence that California’s tax rate has sparked an exodus from the state, although it is easy to find a few anecdotes of people who have left. The question is whether the same would hold true in New York.
Here is what’s indisputable: Incomes of the rich are highly volatile and dependent on the vicissitudes of the securities markets. By increasing its reliance on wealthy taxpayers, New York (and California) will see its budget implode when the economy faces a downturn.
The state legislature will soon decide if New York will have the 14th-highest income tax rate in the U.S., the second or stay at seventh. In doing so, it will also dictate whether the combined local and state tax rate for the city’s top earners will nearly match California’s sky-high 13.3%, imposed on anyone making more than $1 million. And it will gamble on whether high income taxes send rich people fleeing to states with low or no taxes on earnings.
This is a story of three options, each with predictable political advocates. New York’s “millionaires tax” is scheduled to expire at the end of the year, which would drop the highest rate to 6.9%, or 14th in the nation. This is preferred by the state’s Senate Republicans, and the Partnership for New York City last week intensified its support for it.
Gov. Andrew Cuomo wants to keep the millionaires tax at its current rate—and the $4 billion a year it generates. That would leave New York with the seventh-highest rate in the nation.
Assembly Democrats have proposed a soak-the-rich levy that would raise the tax to between 9.3% and 9.8% for those making between $5 million and $100 million. Anyone making more than that would pay 10.3%, although, as the Empire Center for Public Policy points out, no one knows how many taxpayers would be affected. The center’s E.J. McMahon said he thinks the number is fewer than 100.
The Partnership for New York City says relying on so few to pay so much is risky, noting that the top 1% of state taxpayers contribute 42% of all income tax revenue.
The partnership also zeros in on the impact in the city, where the top local rate of 3.9% makes the millionaires tax especially onerous. The 12.7% combined rate is about the same as in California and almost 3 percentage points higher than it is anywhere else. Another way to consider the numbers: Taxpayers in the top bracket pay more than half of any amount they earn above $2 million to the state or the local government, before deductions.
Progressives argue that this is the perfect time to go after the wealthy, because President Donald Trump and the Republican Congress plan to give the rich a big federal tax cut. Congress also might eliminate the deduction of state and local taxes that reduces a household’s federal liability. Doing so would make states with no income tax, from Washington to Texas to Florida, even more attractive for relocation.
But so far there is no convincing evidence that California’s tax rate has sparked an exodus from the state, although it is easy to find a few anecdotes of people who have left. The question is whether the same would hold true in New York.
Here is what’s indisputable: Incomes of the rich are highly volatile and dependent on the vicissitudes of the securities markets. By increasing its reliance on wealthy taxpayers, New York (and California) will see its budget implode when the economy faces a downturn.
A version of this article appears in the February 13, 2017, print issue of Crain’s New York Business as “State risks budget crunch with ‘millionaires tax'”.
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