ALBANY — How much taxation can the rich take?
Beneath the shouts of protesters and the political barbs that have marked the debate over New York’s $152.3 billion budget is a nerdy economic dispute about the effects of raising taxes on the rich.
Pictured: Make the Road New York members demonstrated during the joint legislative budget hearing on taxation in Albany.
Supporters and opponents of raising taxes — or, as Gov. Andrew Cuomo has proposed, renewing the state’s existing surcharge on people reporting more than $1 million in income — faced off at a Tuesday budget hearing while the Democratic governor lashed out at Republicans in the Legislature.
Cuomo said GOP leaders in the Senate were catering to “political donors” in their push to let the tax expire, knocking $3.7 billion a year out of the state’s budget. But he also said last week during a meeting with the New York Daily News that wealthy taxpayers can only take so much “abuse” before moving.
He returned to the theme of flight on Tuesday when he spoke with reporters in Binghamton.
“The fear is that you could raise taxes so high that people leave the state,” he said. “I do believe there’s a tipping point: if you raise taxes too high, people just say, I leave. You’re talking about a small number of highly mobile people. This tax has been on the books for about eight years. They’ve been paying this rate. So, it’s not like you’re raising taxes, you’re just continuing the same tax rate, and if they haven’t left in the past eight years I don’t know why we would be afraid they would leave now.”
Their number has actually increased, according to Ron Deutsch of the Fiscal Policy Institute, a labor-backed think tank. He cited IRS data that shows the number of New Yorkers reporting more than $1 million in income has increased from 35,802 in 2010 to 47,440 in 2014, an increase of 33 percent.
“I don’t think that this population, given the explosion in the number of millionaires since the tax has been in place and the level of income that these folks have, that this would be a good time to provide a $3.7 billion tax cut to the wealthiest,” Deutsch testified at a budget hearing on Tuesday. “I don’t think they’ll forego their millions just because they’re angry about paying a little in taxes to New York State.”
Deutsch backed a plan by Democrats in the state Assembly to raise taxes on the rich, and said his organization has its own plan to increase taxes starting on New Yorkers reporting $665,000 in annual income.
E.J. McMahon, president of the fiscally conservative Empire Center for Public Policy, said that the number of million-dollar earners may be up but that more and more wealthy New Yorkers are declaring themselves to be only part-year residents of the Empire State — members of the “183 club” that spends at least that many days (half a year) living elsewhere.
As such, McMahon testified, only income that is earned from work in New York is subject to state taxes — not overall income that may flow from investments, which are particularly key for the wealthy.
“While nonresidents make up roughly half of the 45,000 households the governor estimates are subject to the millionaire tax, they do not generate a similar proportion of the nearly $4 billion that is raised from the tax. Their actual share ranges between 10 and 15 percent, depending on income class —because, on average, that’s the percentage of income they can allocate to New York sources,” McMahon testified at the hearing. “Even small shifts of millionaire earners can have outsized effects on New York revenues.”
He emphasized the volatility of relying on top earners, who are focused in downstate areas and whose income often fluctuates with boom-and-bust cycles of Wall Street. At least some of the growth Deutsch cited could be attributed to economic recovery since the end of the Great Recession, which is why McMahon noted the impossibility of asserting a causal relationship between taxes and migration.
New York already has one of the highest relative tax burdens in the country, McMahon noted. Kathy Wylde, president of the Partnership for New York City, seized on the point and said it should be weighed against other global financial centers.
“Only California has moderately higher tax rates than New York City. Texas and Florida, with no personal income taxes, are growing their economy and creating new jobs at a significantly faster pace than New York,” Wylde said in a statement. “Moreover, downstate accounts for 92 percent of all personal income tax revenues generated by New York’s highest earners, putting a disproportionate burden on the region that is producing the most jobs and economic growth for the state.”
The millionaires’ surcharge was first imposed in 2009, at the height of the recession, when Democrats controlled both houses of the Legislature. Republicans in the Senate voted unanimously to renew most of it in 2011 (with Cuomo’s support), but trimmed rates and sold the maneuver as a tax cut.
Now, Senate Republicans say renewing the millionaires’ tax — which Cuomo campaigned against in 2010 — is akin to raising taxes. Sen. Cathy Young, an Olean Republican who chairs that chamber’s finance committee, said members still were discussing Cuomo’s proposal.
“People are suffocating,” she said. We need to look at economic issues and make sure we’re creating the right policies to do business.”
Read McMahon’s testimony here.
Read Deutsch’s testimony here.
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