On the surface, New York doesn’t look too bad in Rockefeller Institute’s latest report on tax trends in the 50 states. Albany’s tax receipts in the third quarter declined by 8.9 percent, compared to a national average of 10.7 percent, the report says. New York’s largest revenue source, the personal income tax (PIT), declined 7.4 percent, compared to a national average of 11.4 percent in other states with income taxes.
Keep in mind, however, that the Empire State’s 2009-10 budget retroactively increased the income tax rate on high-income taxpayers by up to 31 percent. This was the second largest PIT increase to be enacted by the six eight states that enacted personal income tax increases this year, usually including some version of a “millionaire tax” this year.**
New York taxpayers with incomes over $500,000, who were generating well over 40 percent of the state’s PIT revenue before the meltdown, have seen their tax bite grow by nearly one-third on average. On a purely static tax base, that would translate into an overall revenue increase of more than 12 percent. But the base isn’t static — it is shrinking rapidly, most rapidly among high-income households. Adjusting for the tax increase, the decline in PIT receipts in New York under prior law would have been more like 20 percent, nearly twice the national average. And that’s a better indication of what’s going on in the state’s tax base and the economy as the Legislature continues to dither on budget reductions needed to avoid an cash-flow crisis.
P.S. — The Rockefeller Institute report concludes with a warning: “further revenue shortfalls and more spending cuts are most likely on the way for many states — particularly those that did not take significant actions to balance revenues and expenditures in their FY 2010 budgets.” New York, this means you!
**UPDATED 11/24** The other states to increase their income taxes on high-income earners were California, Connecticut, Maryland and Delaware, New Jersey, Oregon and Wisconsin. (Maryland increased its income tax last year.)
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