NYC Income Taxes Going from Ridiculous to Ridiculouser

December 5, 2008

New York City residents may soon face a top state and local personal income tax rate of 11.375%, by far the highest in the country.

Governor David Paterson and other political leaders in New York State have endorsed a regional payroll tax to cover a large budget gap at the Metropolitan Transportation Authority, and to fund the authority’s ongoing capital program. The 0.33% tax would be levied on all payrolls in the MTA’s service region, which covers New York City and eight suburban counties north and east of the city. For NYC residents, that would come on top of a personal income tax that tops out at 10.498%, including city and state components.

Like the MTA, New York City is facing its own budget shortfall, and Mayor Michael Bloomberg has floated the possibility of an income tax surcharge of up to 15% on the city portion; that, combined with the proposed MTA payroll tax, would slam New Yorkers with an 11.375% rate. (While the 0.33% payroll tax would be charged to employers, not employees, there is no reason to believe that the economic incidence is different than that of a wage-specific income tax.)

At the current 10.498%, New York City residents already pay the highest income tax rate in the country, slightly outstripping California’s 10.3% top rate. However, as I noted last month, that California tax is only on incomes over $1,000,000. New Yorkers start paying 10.498% on dollar $50,001 of taxable income, so a much broader set of taxpayers face the high marginal rate. The increased rate would apply at the same threshold.

More on New York City taxes here.

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