Cuomo's $1.9 Billion Tax Increase
Governor Cuomo is trying to brand his tax increase as "Fair Tax Code Reform" with this explanatory chart:
The new tax bracket structure would be reorganized as follows:
But the real story is this line of the press release: "The new tax structure would generate $1.9 billion in additional revenue for the State."
I think that revenue estimate is overly optimistic, but the "previous tax rate" comparison in the chart above, taken from Mr. Cuomo's press release, is egregiously misleading. The state tax rate that would have been effective January 1 for that "over $2 million" category" was 6.85%. The 8.97% rate was a supposedly temporary "millionaires tax" that was supposed to expire at the end of 2011 and that Andrew Cuomo campaigned on a promise to allow the expiration of. This tax deal allows Mr. Cuomo to pose as a tax cutter: "Under the new rate structure, a total of 4.4 million New Yorkers would receive a tax cut, including a $690 million reduction for middle class taxpayers, and all taxpayers would see a tax reduction or no change compared to their previous tax bill." But what it really is is a $1.9 billion tax increase that buys into the 99% versus 1% "Occupy" rhetoric.
As culpable as Mr. Cuomo is the New York State Republican Party. The New York State Senate Majority Leader, Dean Skelos, approved the deal and is quoted in the Cuomo press release boasting, "This comprehensive plan will reduce the tax rate for middle class families to their lowest levels in more than fifty years, create thousands of new private sector jobs, and begin to turn our economy around."
The Manhattan Institute's E.J. McMahon notes: "For New York City residents, the combined state-local top rate will be 12.5 percent, highest in the country." He also observes: "as in the current temporary law, the top rate apparently will not be a marginal rate, applying to added dollars of income above the $2 million threshold. Rather, it will be a flat tax, applying to 100 percent of taxable income above a narrow phase-out range of $50,000."
One other point: at a 12.5% combined state and local tax rate, on top of the federal tax rate, those triple-tax-free New York municipal bonds start to look awfully attractive to wealthy investors compared to a lot of other taxable investments that could be made in the private sector. So in some ways the tax is a two-way punishment — not only is New York going to tax the heck out of high-income individuals on their taxable income, but by doing so we are in essence going to force you (if you are rational) to lend money to the government.
Update: The Wall Street Journal has a very good editorial that looks at California as well as New York.
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