Governor Andrew Cuomo said last month that a possible extension of New York’s temporary 29 percent surtax on the incomes of million-dollar earners would hinge on one question: “how much money do you need?”
Now, courtesy of the newly released FY 2018 Executive Budget Financial Plan, we know the answer: assuming no further spending cuts, the governor needs to extend the full “millionaire tax” long enough to raise an added $683 million in revenue for fiscal 2018, and $2.7 billion for fiscal 2019. But assuming he sticks with his promise to hold spending growth to 2 percent—a goal that Senate Republicans want to enact into law—he could cut the surtax in half in 2019, and eliminate it entirely after FY 2020, as shown below.
Nonetheless, Cuomo is proposing a full, three-year extension of the 8.82 percent rate, which is due to expire on Dec. 31, 2017. Under his budget, the higher rate would stay in effect through tax year 2020—raising nearly $1 billion more than the state will need, based on financial plan projections. (Tax years are calendar years, overlapping with the first three-quarters of state fiscal years, which begin April 1. Thus, for example, a tax rate effective in tax year 2020 affects revenues through three quarters of fiscal 2021.)
By way of background: Under the permanent law in effect since 1997, New York’s top rate is 6.85 percent. The temporary surtax on high earners was first imposed in 2009 at a rate of 8.97 percent, in the midst of a severe revenue downturn brought on by the Great Recession. Due to a peculiar wrinkle in New York’s tax law, the “millionaire” rate is applied as a flat tax on 100 percent of the taxable income of most filers affected by it.
During his 2010 campaign and through most of his first year in office, Cuomo pledged not to extend the added tax. But in December 2011, he pulled a U-turn and renewed the tax at a very slightly lower rate of 8.82 percent through 2014, effective at a higher threshold. Cuomo and the Legislature stealthily agreed to extend the millionaire tax again in 2013, a full year ahead of its expiration. It is now set to expire Dec. 31 of this year.
Yet another thing
“One of the main aspects of this budget is tax policy, and this tax policy in this budget does two things,” Cuomo said, referring to the millionaire tax extender and the additional “middle class” tax cuts enacted last spring a start of the FY 2017 budget. Those cuts are to be phased in between 2018 and 2025.
But the budget’s tax policy also includes a third—and completely unnecessary—thing: it calls for a full three-year extension of the Film and TV Production Credit, which is due to expire after 2019.
The credit (including an associated post-production credit) costs $445 million a year—by far the most egregious giveaway any state offers to Hollywood producers. Allowing the credit to lapse would further improve the fiscal picture starting in fiscal year 2021; because so many of the credits are claimed on a lagged basis, the impact is forecast as a $31 million revenue decrease in 2022. This would make making the millionaire tax even less necessary, and free more money for the kind of broad-based tax reductions.