Albany’s soaking the rich, again
Three years after boosting New York State’s top tax rate to its highest level since 1981, Democratic majorities in both houses of the Legislature have united behind a plan to raise personal income taxes even higher on Empire State income millionaires.
Identical tax hike provisions were included in alternative budget proposals passed by the Assembly and state Senate this week — setting the stage for negotiations with Gov. Hochul heading into the next state fiscal year, which starts April 1.
Lawmakers in Albany want to raise the state’s top two tax rates a half-percentage point, to 10.8% on incomes starting at $5 million, and to 11.4% on incomes starting at $25 million. As things now stand, New York State’s top rate is second highest in the nation, exceeded only by California — but including local income tax, residents of New York City already are subject to the highest tax rates in the country.
Hochul was quick to dismiss the Legislature’s tax plan as a “non-starter,” but lawmakers clearly mean to lay down a marker for the future. Indeed, for many in the Senate Democratic supermajority, the added half-percent of tax on top incomes would just be a start.
Nineteen of the 42 state Senate Democrats have signed onto a bill that would boost New York’s top tax rate to a startling 24%. Some also want to tax billionaires’ unearned capital gains — an idea now embraced by President Biden on the federal level — even though any such tax would be explicitly outlawed by the state Constitution (not to mention easily and readily evaded).
Challenged to explain how and why they expect multi-millionaire earners to sit still for a double-digit tax bite, tax-hike advocates often cite what they regard as the good old days of 1960s and ’70s, when Gov. Nelson Rockefeller took New York’s top tax to just above 15%. But Rockefeller’s tax was fully deductible against a federal rate topping out at 70% — leaving the effective cost of Albany’s share at a modest 4.6%.
By the 1970s — with the state hemorrhaging both jobs and residents, and New York City virtually bankrupt — there was a growing recognition that New York’s taxes had grown much too high. Starting under Democratic Gov. Hugh Carey and continuing under Mario Cuomo, New York’s top income tax rate was ultimately cut nearly in half, to 7.9%. In the late 1990s, Republican George Pataki reduced it further to 6.85% — where it stayed, with one brief interruption, until 15 years ago.
Albany’s bipartisan commitment to tax restraint began to loosen during the budget squeeze brought on by the Great Recession and financial crisis of 200809, when Gov. David Paterson agreed to impose a new “millionaire tax” of about 9%. When Andrew Cuomo ran for governor in 2010, he pledged not to extend this tax beyond its expiration in 2011 — only to renege within a year of taking office.
Cuomo repeatedly extended the temporary tax increase until 2021, when it was made permanent in his last budget, along with the added higher rates the Legislature now wants to increase. Those tax hikes are also technically temporary, due to expire in 2027 — but the longer the Legislature gets used to resulting cash flow, the less likely that sun will ever set.
Meanwhile, even before COVID-19 prompted a steppedup migration of some high-profile high rollers to Florida and other low-tax states, there was no lack of evidence that New York’s tax base was leaking from the top.
Between 2010 and 2020, New York’s share of all U.S. income millionaires dropped from nearly 13% to under 9%, according to federal tax data. The number of New York millionaire filers rose from 55,100 in 2020 to 75,580 in 2021, reflecting record Wall Street bonuses and capital gains. But that 37% increase ranked dead last among the 50 states, where millionaire filers rose an average of 58%.
New York’s marginal income tax rates effectively were raised even higher by the federal tax law of 2017 and its tight $10,000 cap on state and local tax (SALT) deductions. The SALT cap is due to expire at the end of next year — but most congressional Democrats and Republicans clearly have little interest in restoring it, especially for top earners. Biden, meanwhile, has put soak-the-rich tax hikes back on the table in Washington.
For New York State, whose finances already rely more heavily than ever on a small number of high earners, tax hikes imposed at any level of government will be a losing proposition.