The following is the text of a letter to the editor published March 11 in the Schenectady Daily Gazette:
New York State’s failure to adjust its personal income tax structure for inflation has, indeed, increased the tax burden on middle-class families over the past 30 years, as the Gazette’s March 7 editorial points out. But the editorial failed to note that the effective tax rate for these families was significantly reduced by Governor George Pataki’s 1995 tax cut, which was targeted primarily at low- and middle-income brackets.
Unfortunately, the Gazette also embraces wrongheaded idea (pushed by government employee unions) that the best way to reduce taxes on the middle-class is to restore the state’s sky-high 1970s tax rates on wealthier households. Some factors you overlooked:
1. The steeply “progressive” state income tax structure of the 1970s, with its top rate of 15 percent, was largely to blame for a tremendous economic decline culminating in the near-bankruptcy of New York City and a severe fiscal crisis for New York State. That’s why two Democratic governors, Hugh Carey and Mario Cuomo, took the lead in reducing the state’s anti-competitive marginal tax rate.
2. For the wealthiest taxpayers, the net cost of the New York State income tax is roughly the same as it was 30 years ago, after adjusting for deductibility on federal tax returns. For the growing number who can’t fully deduct state and local taxes, the state income tax is effectively higher than it was in the ’70s.
3. Taxpayers earning $1 million already generate more than 29 percent of New York State income tax liability, despite accounting for less than one half of one percent of all filers. Albany’s growing dependence on taxes paid by a very narrow slice of wealthy households makes the state budget much more vulnerable to volatile swings in corporate bonuses and investment income.
4. A significant chunk of New York’s wealthy taxpayers are out-of-state commuters whose well-paying jobs could just as easily be relocated closer to their homes in New Jersey and Connecticut if the New York State income tax gets too far out of line.
Far being “headed in the wrong direction,” Governor Pataki’s latest tax cut proposals would take the natural next step of stretching brackets and making other changes in the tax structure to benefit middle-class families. Importantly, Pataki’s tax cuts also are designed to strong new tax incentives for business investment in the state.
The tax code should be designed to promote strong economic growth that will benefit all New Yorkers. Raising the state income tax rate back to Watergate era levels is a sure-fire way of destroying thousands of jobs and leaving all of us to cope with a stagnating, disco-era economy.
Sincerely,
Edmund J. McMahon
Director, Empire Center for Public Policy
Albany