NEW YORK—Gov. Andrew Cuomo reached an agreement with state lawmakers on a new tax code on Tuesday that increases taxes on the wealthiest New Yorkers, going against Cuomo’s campaign promise not to raise them. The new plan extends the “millionaire’s tax” which is set to lapse on Dec. 31 for people earning more than $2 million, while creating $690 million in savings for the middle class.
Prior to a provision instituted in 2009, commonly known as the millionaire’s tax, people in all income brackets paid a 6.85 percent state income tax. Since 2009, people earning $300,000 or more paid 7.85–8.97 percent in state taxes, with those earning more than $2 million paying the state’s top tax rate of 8.97 percent.
Cuomo was against renewing the millionaire’s tax, reasoning that wealthy New Yorkers may move to states with lower taxes. But the governor has had a change of heart. His new plan includes the millionaire’s tax, albeit one that aims at New York’s richest.
Under the new plan, only people earning more than $2 million will continue to pay the millionaire’s tax although at a lower rate of 8.82 percent. Meanwhile the rest of the brackets will lapse back to pre-2009 rates, with those earning less than $300,000 paying even less.
E.J. McMahon, senior fellow at the Empire Center for New York State Policy, wrote on blog: “Governor Andrew Cuomo and legislative leaders have just announced a deal on a major increase in the state income tax rates compared to what is scheduled under current law — i.e., the official breaking of the Cuomo promise not to raise taxes.”
The new tax code is very likely to pass the Legislature unchanged, according to James Parrott a spokesman for the Fiscal Policy Institute. Republicans are not likely to block the new tax code as they are outnumbered in the Assembly, while the Senate majority leader is a Republican and a signee to the new code.
“I think the governor did a good job of framing the situation as using progressive tax reform to partially address the budget challenges the state is facing,” Parrott said. “But, frankly, this isn’t enough revenue and we need to keep looking to see how we can raise more revenue.”
Progressivity, or fairness, of a tax code is a measure of how tax rates increase with the income level. Lawmakers achieve “fairness” by passing a higher tax rate to those with the ability to pay more.
The press release from the governor’s office says that the state will generate $1.9 billion in revenue under the new tax code. This is in comparison to the pre-2009 tax rates to which the current system is scheduled to revert. The state is currently facing a $3.4 billion budget deficit.
“We must reform our tax system to stimulate the economy and restore fundamental fairness,” Cuomo wrote in an op-ed sent to reporters on Monday. Cuomo called for swift action on the new agreement in the letter.
According to Cuomo, New York lags behind other states in terms of fairness and progressivity in the tax code. The governor aims to achieve fairness by creating more tax brackets for the middle class.
“The millionaire’s tax purported to shift the tax burden to the super wealthy to alleviate the burden on the middle class. But it failed on both counts,” Cuomo wrote.
The millionaire’s tax did not specifically target millionaires, “and it did absolutely nothing to lower the disproportionately high tax burden on middle class families, who continue to pay the same marginal rate whether they make $40,000 or $299,000 in taxable income,” wrote Cuomo.
Contrary to Cuomo’s statements, New York’s tax code is ranked in the top three most progressive among all states across all income ranges up to $1 million, according to a 50-page state study conducted by the Minnesota Taxpayers Association.
The New York state tax code also consistently ranks as the most progressive among all states when applied to low-income families, according to a study by the Center for Budget and Policy Priorities.
Parrott argues otherwise.
“When you look at all New York state and local taxes we have a regressive tax system overall where the top 1 percent is paying a lower share than people at the middle or the bottom,” said Parrott. “Even after it [the new tax code] is passed, we will have a regressive tax system overall.”
To further examine the state’s tax code issues, the governor is establishing a commission tasked to overhaul the tax system as part of the agreement. The New York State Tax Reform and Fairness Commission will examine ways to eliminate tax loopholes, reduce administrative redundancies, and improve tax collection and enforcement.
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