New York considers hiking taxes for the rich to fill COVID-19 hole
Policymakers in New York are debating whether to raise state taxes on wealthy residents to address fiscal challenges caused by the coronavirus pandemic.
State lawmakers and outside groups argue that raising taxes on the rich would help to minimize cuts to spending on valuable services. They’re hoping New York will follow in the footsteps of neighboring New Jersey, where politicians last week announced a deal to raise taxes on millionaires.
But New York Gov. Andrew Cuomo (D) has resisted those calls. Instead, he has pushed for states to receive more federal funds, and he is concerned that tax increases could put New York at a disadvantage.
“Before you talk about tax increases in New York City or New York state, let’s first focus on the better options,” Cuomo said during a press conference earlier this month.
New York was hit particularly hard with the coronavirus in the spring, followed by a revenue shortfall. The state budget division is projecting that receipts will be $14.5 billion less for the current fiscal year than it had projected in February. That shortfall is estimated to balloon to $62 billion through fiscal 2024.
The state has already reduced spending by about $4 billion on a year-over-year basis, taking steps such as withholding portions of certain local aid payments, freezing hiring and deferring pay increases.
Cuomo and state lawmakers have been advocating for increased federal funds for states, but aid to states has been a source of contention between congressional Democrats and Republicans. It remains unclear whether Congress will even pass another coronavirus relief package.
That uncertainty has prompted some lawmakers and advocates to look at what New York could do on its own.
“We must fight to maximize federal aid to fill New York’s gaping budget gap, but we must also be prepared to raise needed revenue from those who can afford to contribute to our recovery,” a group of more than 100 state lawmakers, along with labor unions, said in a June statement. “To get through this crisis, we are going to need both massive federal aid and a significant contribution from New York’s most well-heeled residents.”
Legislators and union leaders said there should be no state budget cuts without tax increases on the wealthy. They argued that low-income residents and people of color have been hard-hit by the pandemic, while in some cases the wealthiest have seen their financial assets increase.
A spokesperson for the New York state Senate majority referenced a statement that Majority Leader Andrea Stewart-Cousins (D) issued in July, in which she said that “while we collectively work to get needed federal aid from Washington, there is no question that substantial additional revenue action from the state will be necessary.”
Democratic state lawmakers have offered a number of bills aimed at hiking taxes on the wealthy, including bills to raise the top marginal tax rates for millionaires, tax billionaires’ unrealized capital gains and do away with rebates for payments of the state’s stock transfer tax.
Lawmakers have not given any indication about when any of those proposals might be considered.
Supporters of increasing New York’s taxes on the wealthy are encouraged by the agreement announced last week by New Jersey Gov. Phil Murphy (D) and lawmakers in that state to raise the tax rate on income between $1 million and $5 million from 8.97 percent to 10.75 percent, matching the rate for income above $5 million. Under the agreement, New Jersey would also provide a rebate of up to $500 to individuals making up to $75,000 and couples making up to $15,000 who have at least one dependent child.
Ron Deutsch, executive director of the Fiscal Policy Group, which signed on to the June statement, noted that New Jersey increased taxes for millionaires to a rate that is higher than the top New York state marginal tax rate of 8.82 percent.
“We certainly think there’s room for an increase,” he said.
Cuomo, however, has been hesitant to endorse the increases championed by his own party.
During a Sept. 8 press conference, Cuomo said the best way to address New York’s deficit would be for the federal government to provide more assistance to states. He also said he thinks it makes more sense for taxes to be increased for the rich at the national level.
“You want to do a billionaires’ tax? Great. Do it nationwide. You want to do a multimillionaire tax, millionaire tax? It should be nationwide,” he said. “Why force our state to increase taxes and then put us at a competitive disadvantage?”
During a press conference in August, Cuomo expressed concerns that a millionaires’ tax in the state could be a disincentive for people who left New York City during the worst of the state’s coronavirus outbreak to return. He said the highest earners in the state pay about half of the state’s personal income taxes, and these people are very mobile.
New York State Budget Director Robert Mujica, a Cuomo appointee, said in a statement last week that wealthy individuals who live in New Jersey would still pay less in taxes than high-income taxpayers in New York City, who pay a city income tax in addition to state taxes.
“The overwhelming majority of billionaires and millionaires in this state live or work in New York City,” Muijca said. “The combined state and city income tax rate is already 12.6 percent — which is higher than New Jersey’s new top rate or a proposed 12 percent ‘billionaire/millionaire tax rate.’”
The Citizens Budget Commission, a New York-based think tank that has released a proposal about how to balance the budget without new taxes focused on the rich, released a report in June finding that the number of people with income of at least $1 million grew faster between 2010 and 2017 nationwide than it did in New York and that the share of U.S. millionaires living in New York declined during that period.
Andrew Rein, president of the commission, said state policymakers should be cautious about raising taxes on high earners.
“High-income earners contribute a lot to the tax base,” he said.
But other fiscal policy researchers have cast doubt on the argument that raising taxes would cause millionaires to leave New York.
The Institute on Taxation Economic Policy (ITEP) released a report earlier this month that found in 2018, the first year that the federal cap on the state and local tax deduction was in effect, California and New York were the two states that added the most new millionaires.
“We’re seeing a significant amount of millionaire growth in states that have comparatively higher taxes on millionaires,” said ITEP research director Carl Davis. He said that while there will be anecdotal evidence of millionaires who move for tax reasons, high-income people may not want to relocate.
“By the time you become a millionaire, you can afford to live wherever you like,” he said.
Jackson Brainerd, a senior policy specialist at the National Conference of State Legislatures, said many states have not focused on taxes during their 2020 fiscal years, focusing instead on drawing on reserves, freezing spending and borrowing money. He said he’d expect more states to start looking at tax increases to address budget shortfalls as the 2021 fiscal year progresses, particularly if Congress doesn’t approve any additional federal aid.
“If the last economic downturn is any guide, there will be more states that target higher earners,” he said.
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