Advocates of a huge increase in New York State’s income tax continue to attempt to mislead the public about who pays how much of the current state income tax.
The latest promotional gimmick from the union-backed Working Families Party is a YouTube video of a man-and-woman in the street interview, in which the question posed is: “So, for New York State, how much do you think you have to be making per year to be in the very top income tax bracket?” The answer given by the interviewer is “$20,000” – which, in fact, is wrong.
New York has five graduated income tax brackets, the highest of which does, indeed, kick in at $20,000 of taxable income for single filers. Taxable income is determined by subtracting deductions, exemptions and credits from adjusted gross income, or AGI—that combination of salaries and other income that most people think of when asked how much they are “making per year.” But taxable income in New York is lower–often much lower–than AGI.
If you’re a single New Yorker with no dependents, you don’t pay the top rate of 6.85 percent on an added dollar of income until you are making $27,501 or more (i.e., one dollar over the $20,000 bracket, plus the $7,500 standard deduction for single filers). Your state income tax bill on $20,001 in taxable income will be $950 — or 3.45 percent of AGI. By comparison, the average effective rate (after deductions and exemptions) for New Yorkers with annual AGI above $1 million is 6.1 percent, which is 77 percent higher.
Here is a chart showing the average effective tax rates for different income tax groups as of 2006, the most recent year for which data are available from the state Department of Taxation and Finance:
Memo to WFP & Union Friends:
- In New York, the combination of standard deduction, exemptions and credits is significant, especially for taxpayers with kids, reducing taxable income in the process. For example, if you earn AGI of $27,501 and are a single parent of one dependent child, you will pay only $127 in New York State income tax, an effective rate of 0.46 percent. If you earn that same income and have two kids, you’ll pay no income tax and get a check from the state for $600–in effect, a negative income tax rate of about 2.2 percent.
- Maybe you’d prefer the Maryland income tax system, which now has eight brackets (compared to New York’s five), and where the new top statewide rate of 6.25 percent doesn’t kick in until taxable income reaches $1 million. Sounds nice and “progressive,” doesn’t it? But wait! The Maryland state income tax on a single person earning $27,501 is $1,007 — $57 more than New York’s tax on the same person. How to explain this? The answer lies in the difference between bracket structures and deductions in the two states. See–the top bracket threshold isn’t everything.
- Next time, go ask the man and woman in the street to guess what share of income taxes will be paid by the richest 1 percent of New York tax filers this year, and what share will be paid by the two-thirds of New Yorkers who earn less than $50,000. Few are likely to come up with the correct answers–which are 35 percent and under 5 percent, respectively. Special bonus question: what’s the top New York State income tax rate on private-sector retirement income, compared to the top state income tax rate on state and local government pensions? (Answer: 6.85 percent and zero.)
- Confusing taxable income and AGI, and trying to make people believe they “pay the same tax rate as Donald Trump,” is deliberately misleading. But you probably already knew that.