NY’s tax burden: still heaviest

by E.J. McMahon |  | NY Torch

New York ranks number-one in the Tax Foundation’s latest annual ranking of combined state and local tax burdens, released this morning.

As of 2011, the combined per-capita tax burden on New Yorkers came to 12.6 percent of per-capita state income, the report said. The national average was 9.8 percent.

But wait: the newly enacted “Grand Slam” state budget includes real cuts in corporate and estate taxes, right?  What would our ranking look like if these cuts had been fully effective in 2011?

Using the Tax Foundation’s methodology, New York’s ranking would still have been number-one, or at best number-two.* And that would hold true even if you also counted the new temporary “property tax relief” package–which actually is more of a spending program than a tax cut.

The business and estate tax cuts enacted by New York this week will be worth perhaps $1.3 billion a year when fully phased in over the next several years (and that’s being very generous; we’re still awaiting an authoritative score). But to reduce New York’s combined per-capita tax burden to the national average, as counted by the Tax Foundation, we’d need to cut the total per-capita tax burden by 20 times as much. Tax cuts of $3.4 billion would take New York down to the New Jersey second-place level on the tax burden rankings; another $4 billion top of that would leave New York with a tax burden equal to Connecticut’s. Reducing New York’s per-capita state and local tax burden to the level of fourth-place California would require a total state and local tax cut of $12.6 billion.**

Of course, no measure is flawless. As the Tax Foundation points out:

When answering the question of which state’s residents pay the most in state and local taxes, it should be clear that such tax burden measures are not measures of the size of government in a state, nor are they technically measures of the complete burden of taxation faced by a given state’s residents (this study excludes compliance costs and economic efficiency losses). Furthermore, the tax burden estimates presented here do not take into account the return to that taxation in the form of government spending. These drawbacks, however, are not unique to our tax burden estimate.

The corporate and estate tax cuts were genuine pro-growth steps forward. However, using any standard, this much remains undeniably clear: when it comes to establishing a more competitive total tax burden, New York has a long, long way to go.

* It should be noted that state taxes in New York as of 2011 would have included a temporary personal income tax hike valued at $4.5 billion or so in temporary personal income taxes that were allowed to expire at the end of that year, at which point the temporary PIT was restructured to temporarily extend most of the rate hike on highest earners while temporarily cutting rates on lower earners.  Official estimates aren’t easily available, but the net difference probably came to at least $2 billion.  If you subtract that from the 2011 base, plus the newly enacted FY 2015 tax cuts (genuine cuts that is, not “property tax relief”), New York’s tax burden as a share of per-capita income falls to 12.2 percent, a hair behind New Jersey’s 12.3 percent.

** The Tax Foundation measure includes an estimate of taxes paid by New Yorkers to other states, based on a fairly complex formula. But since these amounts are out of the control of policymakers within the Empire State, estimates of what it would take to reduce New York’s tax burden necessarily must focus on taxes paid to the home state and its local governments.  In reality, any reduction in New York taxes also paid by commuters from neighboring New Jersey and Connecticut would also reduce some of the total tax burden for residents of those states — so, if anything, the competitive gaps estimated above are somewhat larger.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.