While legislative leaders and Governor Cuomo were cooking up a budget deal in Albany, the New York City Independent Budget Office (IBO) was issuing five years’ worth of updated statistics showing how heavily the city already depends on the volatile earnings of taxpayers at the top of the income pyramid.
In 2013, the highest-earning 1 percent of city residents—those with adjusted gross income (AGI) of at least $636,866—earned 38 percent of adjusted gross income and accounted for 47 percent of city income tax liability, according to the IBO stats. The same group of filers paid 54 percent of the state income tax paid by residents of the city, the IBO data said.
The distribution of the combined city and state taxes was very progressive, as shown below.
Other key takeaways:
- The lowest-earning 50 percent of New York City tax filers had 5.8 percent of total AGI and paid net negative taxes of 0.2 percent of total income. Two-thirds of that bottom 50 percent of city residents (income cutoff of $29,133) paid no city or state income tax. Sixty-eight percent of city income tax filers earned less than $50,000, and half of them owed no tax.
- The higher you go on the income scale, the larger the share of income came from capital gains on investments. Between 2009 and 2013, two-thirds of the net growth in AGI for filers in the top 1 percent originated in “realized capital gains.”
- Capital gains accounted for 86 percent of the growth in AGI for the top one-tenth of 1 percent—those earning at least $10 million. Added capital gains were the main reason why there were 498 more filers in that category in 2013 than in 2009, following the recession and stock market crash.
- The top 1 percent pay average city income taxes of $105,924—$106 million for every 1,000 filers. Those earning $10 million and above paid an average of $1,294,769 in city income taxes. To put it another way, if just 100 of these 1,315 super-high earners (as of 2013) went broke or moved away, the city could lose about $130 million in revenues.
From my Feb. 2 state budget testimony:
There are clear risks associated with depending so heavily on such a small number of taxpayers. It means that when high-income households have a bad year, the entire state suffers inordinate fiscal stress. It has happened before, and it could happen again soon enough.
For fiscal 2017, the budget projects a 5.3 percent increase in the capital gains income of New York residents—based in part on the assumption that the S&P 500 will grow by 2.2 percent during calendar year 2016. Given the market’s slump however, the S&P will need to rebound by at least 6 percent over the next 11 months to hit the budget’s target. Of course, that could happen, but there’s less reason to be optimistic now than there was a year ago.
In the fourth quarter of 2015, the state Labor Department’s Index of Coincident Economic indicators registered its first two-consecutive-month decline since the end of the recession. Subsequent statistical adjustments may change that—as happened in fact, a year ago, but it’s nonetheless a yellow flag. Another yellow flag: the New York Federal Reserve reports that, in December, its own Index of Coincident Economic indicators for New York State decreased at an annual rate of 0.4 percent.
Tax policy should reflect economic reality even as it seeks to improve the economic outlook. We need to carefully rebalance the distribution of New York’s tax burden with the twin goals of making the state more competitive and protecting against economic shocks, which are inevitable sooner or later.