Just in time to further debunk claims that the wealthy don’t pay their “fair share” of New York State taxes, the Assembly Majority Ways and Means staff has issued a pessimistic new assessment of the economic outlook (“bleak”) and revenue forecast (sinking fast). And right there on p. 80 of the Ways & Means Revenue Report is this passage:
New York, like the Federal government, utilizes a progressive personal income tax structure. This method of taxing naturally implies a higher weight on the contributions of the State’s most wealthy taxpayers. As a result, a progressive tax structure has a more elastic response to market volatility than a less progressive structure.
On the following page is this chart:
As shown, the highest-earning 10 percent of taxpayers generated 58 percent of the growth in adjusted growth income (AGI) but nearly 74 percent of the growth in income tax receipts in 2006. The bottom 90 percent accounted for roughly 42 percent of AGI growth but only 26 percent of tax liability growth.
The headline news associated with the issuance of Ways & Means reports is the forecast that revenues will be $1 billion lower than the projection in Governor David Paterson’s budget. “The Assembly is committed to working with the Executive and the Senate to craft a budget that fulfills our commitments to education, health, economic development and public protection, while ensuring that the burden of cuts does not fall disproportionately on poor and working class families,” Assembly Speaker Sheldon Silver said.
Translation: Sure, there’s even less money than everyone thought. But we still want to restore Paterson’s baseline spending reductions and raise income taxes on high-income households.
However, before rushing to reinflate disbursements and enact the so-called “millionaire tax” to finance them, Silver might want to dig a little more deeply into the Ways & Means report — particularly the section detailing how the budget gap got this big in the first place.
Since 2003-04, the Revenue Report notes, the state has experienced record increases in all major taxes, “especially the ones directly related to the booming Wall Street and real estate markets.”
The report continues:
During those years of unprecedented gains the State increased its reliance upon sources of revenue that are inherently unstable. However this mix of volatile tax receipts sources – such as the bonus component of wages and capital gains – has also proved to be unsustainable. The transformation in the financial markets – with the disappearance of investment banks and what promises to be new safeguards and oversight in lending practices – will have significant implications for the State’s future revenues. To the extent that incentive compensation in Wall Street changes, as most observers tend to think, with more internal restriction in bonus pools and allocations, it is doubtful that New York will experience going forward the same unprecedented growth in PIT receipts, especially from wealthier income groups.
So, to recap the analysis from the Ways & Means Revenue Report:
- New York State has been heavily reliant on a “progressive” income tax, which “implies a higher weight on the contributions of the State’s most wealthy taxpayers,” including investment-related income. (Page 80)
- But that kind of revenue is “inherently unstable,” “volatile”and “unsustainable.” (Page 40)
- “Stable revenue growth is the cornerstone of a sound financial plan.” (Ibid.)
And the implication of all this is … New York should raise taxes on its (remaining) wealthy taxpayers? Sounds like a recipe for more instability in the future. Not to mention further economic decline.