In response to the Occupy Wall Street protest, a pair of Democratic state lawmakers from New York City is repeating some flagrantly inaccurate data about taxes in New York State. In an essay at Huffington Post, Senator Daniel Squadron of Brooklyn and Assemblyman Rory Lancman of Queens support a permanent extension of the so-called millionaire tax. Their version of the “fairness” argument:
For decades, the Republican Party has pursued a long-term strategy to undermine government’s ability to protect workers and the environment by shifting its costs to those who can least afford it: From 1977 through 1997, New York’s top income tax rate was repeatedly cut to the point where married couples in New York making $40,000 a year paid the same income tax rate as someone making $10 million a year, and families making $55,000 a year paid a 22% higher share of their income in combined state and local taxes than did families making over $3 million a year.
Wrong. Wrong. And wrong.
1. Most of the reduction of New York’s top marginal income tax rate between 1977 and 1997 was enacted under Democratic governors. Gov. Hugh Carey dropped the top rate from 15.35 percent to 10 percent, and Gov. Mario Cuomo signed legislation taking it down to 7 percent, before changing his mind and freezing at 7.875 percent. These cuts were supported by solid majorities of Democrats in both houses of the state Legislature, including one-sided Democratic majorities in the state Assembly. Republican Gov. George Pataki was a tax-cutting piker by comparison. His 1995 tax reform cut the top rate by barely a percentage point, generating marginal savings of 13 percent for the wealthiest New Yorkers, while expanding other tax benefits to generate an average cut of 25 percent for middle-income families. As for “shifting its costs to those who can least afford it,” Squadron and Lancman have it backwards. It was the lone Republican out of New York’s last six governors who spearheaded a massive expansion of the Earned Income Credit (EIC). As a result, over a million of low-income workers pay little or no income tax at all but get an annual EIC check from Albany, with the largest amounts reserved for those who earn the least and have the largest families to support.
2. Married couples with incomes of $40,000 a year do not pay the same income tax rate as someone making $10 million a year. A childless married couple with income of $40,000 pays income tax of $1,069 — an effective rate of 2.7 percent. If they have one child, their tax falls below 2 percent. If they have two, their tax rate falls below 0.5 percent. By contrast, under the permanent New York law, filers with $10 million in income will typically pay something close to the top rate of 6.85 (over $600,000) regardless of family size. The temporary “millionaire tax” hike of 2009, due to expire at the end of this year, raised taxes on a $10 million earner by over $300,000 $200,000.
3. The claim that families making $55,000 pay a higher combined state-local tax burden than a family with income over $3 million is apparently derived from a multistate tax distribution model that is flawed and misleading in several respects. The model, assumes, for instance, that a typical household in the wealthiest one percent of New York families is subject only to the state income tax — when, in fact, the vast majority of such taxpayers live in New York City, where they are subject to a city income tax as well.* The model also overstates the income tax on middle-class families, and over-estimates the amount a typical middle class family spends on items subject to state and local sales and excise taxes.
To paraphrase the late Daniel Patrick Moynihan, Squadron and Lancman are entitled to their opinions but not to their own facts. If they think higher taxes are the answer to New York’s problems, they should simply say so, rather than spinning arguments based on partisan historical distortions and misinformation.
(For more on the income tax, see my legislative testimony here.)
* A clarification, as pointed out by a knowledgeable observer: about half of state residents earning over $1 million lived in New York City as of 2006. However, they accounted for a disproportionately large amount of total taxes generated by the wealthiest filers.