inverted-houseofcards-150x150-6870935New York City’s Independent Budget Office (IBO) has released its latest data on the distribution of city and state income taxes among city residents—and, once again, the numbers show the tax burden is very light on low- and middle-income households, and disproportionately heavy for top earners.

As of 2014, the top 1 percent of New York City residents—those with adjusted gross incomes (AGI) above $705,000—reported 40.5 percent of total income but paid 49.3 percent of the city income taxes, according to the IBO numbers for full-year city residents.  The entire fifth quintile (i.e., the highest-earning 20 percent of city filers) earned 76.7 percent of AGI but paid 86.5 percent of city taxes.

Summary details based on the IBO data are broken out in the following table, with tax shares representing total tax liability after credits.


The distribution of the New York State income tax burden among New York City residents was even more steeply progressive, with the top 1 percent paying 56.3 percent and the highest-earning quintile paying 91.8 percent of the tax owed to Albany. This in large part reflects the impact of the so-called “millionaire tax,” a temporary 29 percent flat surcharge on filers with incomes starting at $1 million for individuals and $2 million for married couples. However, the state income tax distribution was somewhat more progressive than the city’s even before that higher rate first went into effect in 2009.

The lowest-earning 40 percent of tax filers are eligible for generous refundable city and state child tax credits and earned income credits. As a result, they get more back from the city and state than they pay in, so their tax shares are negative numbers.

New York City’s middle quintile of filers—the 20 percent slice with incomes of $21,273 to $41,036 — earned 7.3 percent of AGI but paid just 3.7 percent of city taxes and 1.8 percent of state taxes.

The combined top income tax rate for city residents is 12.7 percent, second highest in the country after California’s 13.3 percent and more than double the roughly 6 percent median for the 42 states with state and local income taxes. States with no income taxes include Florida, which has been beckoning New York’s wealthiest residents for many years.

The problem with this steeply progressive distribution is not only the incentive it gives high-income households to consider investing, working and living elsewhere. It also makes the city and state budgets dangerously volatile and vulnerable to economic events, especially stock market downturns, whose effects are concentrated among high earners with volatile incomes from dividends and capital gains. The income of the top 1 percent plunged in the Great Recession, blowing a huge hole in the state budget that the millionaire tax only partly closed when it was first enacted in 2009.

While the incomes of very high earners have recovered, the added tax is still there through at least 2017. Even if it is finally allowed to sunset, New York’s city and state income tax base will be comparable to an inverted house of cards.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

You may also like

State Offers Taxpayer-Funded Health Coverage to Unionized Home Care Workers

In a new subsidy for the health-care union 1199 SEIU, the Hochul administration is allowing the union's benefit fund for home care aides to shift some members into taxpayer-funded health coverage through the Essential Plan. Read More

A Closer Look at $4 Billion in State Capital Grants to Health Providers

The state has awarded $4.3 billion in health-care capital grants over the past decade, with a disproportionate share flowing to upstate providers, Health Department records show. Th Read More

NY’s net taxpayer migration loss dropped a bit in 2021-22, latest IRS data show

The outflow of New York taxpayers to the rest of the country subsided from the previous year's record high during the second tax-filing period following the March 2020 COVID-19 outbreak, according to the latest (IRS). Read More

Hochul’s Pandemic Study Is a $4.3 Million Flop

The newly released study of New York's coronavirus pandemic response falls far short of what Governor Hochul promised – and the state urgently needs – in the aftermath of its worst natural disaster in modern history. Read More

NY’s biggest public pension fund gained nearly 12% in FY 2024

Rebounding from its biggest loss since the Global Financial Crisis, New York's Common Retirement Fund realized a strong investment gain of 11.55 percent in fiscal year 2024, state Comptroller Thomas DiNapoli announced. The Fund, which now stands just below $268 billion, supports pensions paid to members of the New York State and Local Retirement System (NYSLRS). Read More

82 Questions Hochul’s Pandemic Report Should Answer

This is the month when New Yorkers are due to finally receive an official report on the state's response to the Covid-19 pandemic, one of the deadliest disasters in state history. T Read More

The Real Lack of Courage Driving NYC Congestion Pricing

Governor Hochul is taking heat after postponing the state’s years-old plan to charge drivers to enter lower Manhattan. As critics slam her for lacking “political courage,” it’s an appropriate time to examine some of the underlying issues that congestion pricing was meant to indirectly mitigate—because many if not most advocates were afraid to touch those issues themselves. And if congestion pricing proponents are to be taken at their word about their concern for MTA finances, or traffic, or air quality, they must show some of the same courage they’ve accused the governor of lacking. Read More

To Encourage Recycling, Pols Move To Trash The Legislature

New York state lawmakers in recent years have surrendered some of their policymaking and taxing powers to the executive branch. With the 2024 legislative session coming to close, they’re poised to go even further and turn those powers over to an organization outside of government entirely. Read More