Yesterday, the New York state legislature passed a bill that would temporarily restructure New York’s individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate structure and effectively extend (with a minor reduction) a temporary “millionaire’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ” that was set to expire at the end of this year. It has been reported that the governor is planning to sign the bill into law. Compare the new tax bracket for single filers with the old one:
|
Old Brackets |
New Brackets |
|||||
|
4% |
> |
$0 |
4% |
> |
$0 |
|
|
4.5% |
> |
$8,000 |
4.5% |
> |
$8,000 |
|
|
5.25% |
> |
$11,000 |
5.25% |
> |
$11,000 |
|
|
5.90% |
> |
$13,000 |
5.90% |
> |
$13,000 |
|
|
6.85% |
> |
$20,000 |
6.45% |
> |
$20,000 |
|
|
7.85% |
> |
$200,000 |
6.65% |
> |
$75,000 |
|
|
8.97% |
> |
$500,000 |
6.85% |
> |
$150,000 |
|
|
8.82% |
> |
$1,000,000 |
(For joint filers the amounts are doubled.)
The measure, which was hastily passed by 55-0 in the State Senate and 130-8 in the Assembly, is hoped to assuage some of the budget problems coming down the pike as New York confronts an expected $3.5 billion budget deficit next fiscal year.
“If I were to close the entire gap by budget cuts, it would decimate essential services, doing real harm to the state’s economy and strangling local governments all across this state,” Cuomo said.
The argument that any reduction in revenues would “decimate essential services” is tenuous at best. New York is a high tax state (they score 50th in our State Business Tax Climate Index), and many states provide “essential” services for less. In 2009, New York collected $6,157 per capita in the form of state and local taxes, the third highest burden in the nation. However, Cuomo’s FY 2012 budget (see page 3) does cut $3.1 billion from the previous year.
As many states face increasingly large budget shortfalls that are often related to economic cycles, leaning on high-income earners and small businesses to pick up a disproportionate amount of the bill raises serious equity concerns and is bad for government revenue stability. Businesses (94 percent of which file through the individual code) and high-income earners tend to have the most volatile income, meaning when the economy turns down, the individuals in the highest income brackets that normally contribute the most to taxes have less money to give. Take California as a case study.
New York’s new tax law will take effect in January.
Follow Scott Drenkard on Twitter @ScottDrenkard
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