Cuomo’s tax policy: moving lips, or ventriloquism?

by E.J. McMahon |  | NY Torch

Governor Cuomo may seek to extend higher state income tax rates in top brackets under the guise of a tax reform or restructuring that might also involve a tax break for middle class, according to a report in today’s Wall Street Journal.

The state’s top marginal rate has been set at 6.85 percent since 1997, but a temporary law enacted in 2009 added brackets of 7.85 percent and 8.97 percent,  imposed on 100 percent of taxable incomes as low as $250,000 and $550,000 respectively.  Those brackets — boosting taxes by up to 31 percent — expire at the end of this year.  Roughly 80 percent of those paying the widely misnamed “millionaire tax” don’t earn $1 million in taxable income.

Cuomo’s press spokesman issued a non-denial denial of the report: “The governor does not have a proposal that has been discussed with anyone.” Which, of course, does not mean he isn’t considering multiple proposals that he is not yet discussing with anyone outside his inner circle. From the Journal story:

But people familiar with [Cuomo's] thinking said one plan under review would create new, higher-income brackets. Wealthier New Yorkers would pay a higher rate than they did three years ago before the temporary tax hike, which expires this year. But they’d pay less than they did this year when the higher rates were still in effect.

The higher rates would be packaged with tax breaks, possibly targeted at the middle class. One way of giving a tax break would be to broaden the brackets so that fewer filers are paying the top rate.

A key question left undecided is who would pay the higher rates—just millionaires or also those with six-figure incomes, said people familiar with the ideas.

Such a restructuring would be portrayed as a “fairer tax system based on reforms and additional brackets,” said a person who has had direct conversations with senior administration officials about the governor’s developing tax agenda. “That’s not an extension of the millionaire’s tax in his mind.”

Whatever it may amount to in the mind of the governor, the extension of a higher marginal rate would, in fact, constitute the sort of tax increase he has repeatedly warned against and pledged to avoid.  Even if “temporary,” a higher income tax will enable the state to continue spending at levels it cannot afford, making it that much less likely the added rate will ever expire.  If the tax hike is permanent, it will mark a fateful reversal of the tax policy direction established nearly 33 years ago by a Democratic governor, Hugh Carey. It will also make the state that much more overly dependent on extraordinarily volatile incomes of a relative handful of households at the pinnacle of the annual income pyramid.

- E.J. McMahon is the President at the Empire Center for Public Policy.