New York state’s highest earning taxpayers would pay thousands of dollars more in income taxes under a proposed bill that sponsors say would raise $6.2 billion and help ease a $13 billion deficit next year.
The measure’s sponsor, Manhattan Democrat Eric Schneiderman, said the move would provide an alternative to increasing the sales tax on clothes and trimming Medicaid and school budgets that opponents say would hurt the poor and middle class.
Opponents say New York’s top 1 percent of earners, who accounted for 36 percent of the state’s total income tax in 2008, shouldn’t have to take more of the tax burden. They also say it would encourage the wealthiest residents to flee.
“There might not be an exodus, but it’s more akin to boiling a frog,” said E.J. McMahon, senior fellow for tax and budget studies at the Manhattan Institute, a business funded policy research organization. “Some are going to jump out.”
Governor David Paterson says he won’t support the measure unless the Legislature lowers spending first or if there is a “continued downturn” in the economy.
“Everybody’s trying to find a way that they can keep spending,” Paterson said yesterday at a news conference in Albany. “If people think they are going to create a false economy here by raising taxes on whether it’s the wealthy, or raising taxes on those making over $250,000, if they consider themselves wealthy, or whoever it is, it’s the same problem and I’m just not going to support this.”
Paterson called for “a severe spending cut that would sustain us at any other time.”
More Opposition
Senate Majority Leader Malcolm Smith of Queens, whose Democratic Party holds a 32 to 30 edge on Republicans, also isn’t supporting the bill, which has at least 10 sponsors including Schneiderman.
“A millionaire’s tax should only be considered as a last resort,” Smith said in an e-mailed statement.
The bill also drew opposition from Republican Senate Minority Leader Dean Skelos of Rockville Centre, Long Island, who said if the Democrats “have their way, the bracket will drop down even lower.
“I guarantee you they are going to get down to the $100,000 range,” he said.
State budget analysts predict that losses on Wall Street and the U.S. recession will reduce the number of millionaires in the state to 44,538 in 2009 from 53,827 two years ago.
Last year the Democratic-controlled state Assembly approved a measure that would have increased the income tax rate on millionaires. The Senate, which was controlled by Republicans then, killed it without a vote.
Rising Rates
The bill would increase the income tax rate for those earning more than $250,000 a year by 1.4 percentage points to 8.25 percent; for those earning $500,000 to 8.97 percent, and for those who earn $1 million to 10.3 percent.
In New York City, where the highest income tax rate is 3.648 percent, a top earner would pay an effective state and local income tax rate of almost 14 percent, McMahon said.
Even that may change under a plan New York City Council Speaker Christine Quinn’s office said she will outline tomorrow. Quinn will propose a three-tiered tax increase on people earning more than $300,000 that would help pay for elimination of levies for those owing no state or federal income taxes. The $1 billion to be raised would also replace a proposed increase in the city’s sales tax.
The state, which in the past relied on Wall Street for as much as 20 percent of its tax revenue, faces a $13 billion deficit in the fiscal year that ends March 31, 2010.
Spending Cuts
Paterson has proposed closing the gap with a budget of about $120 billion that contains billions of dollars of spending cuts, new taxes and fees on gasoline, sugared soft drinks, plastic bottles and clothing. He also wants to raise state university tuition.
Some lawmakers say the governor’s plan imposes burdens mostly on the poor and middle class.
“We’ve raised the incomes at the top so much over the past 10 years that I find it difficult to sympathize with those who are now complaining that they’re paying too much,” Schneiderman said in an interview.
The current tax sets a 6.85 percent rate on incomes ranging from $40,000 to $4 million, which Schneiderman and others described as unfair.
“We need a change in the entire tax structure,” said state Senator Jeffrey Klein, a Democrat from the Bronx and Westchester who intends to introduce a bill with more gradations between $40,000 and the top tier.
“This is not an opportunity to just tax the rich, but to have a conversation that includes not only short-term solutions, but long term recovery,” he said.