Tuesday, December 06, 2011

Gov. Cuomo Strikes Tax Deal That WIll See Higher Taxes For Millionaires

The deal struck between legislative leaders and Gov. Andrew Cuomo will not completely replace revenues generated from the soon to be expired millionaire's surtax, but it will incorporate lower taxes for the middle class and a higher tax rate for those making over $2 million.
The state’s current income tax rates are relatively flat, taxing any individuals who earn $20,000 or more, as well as couples who earn $40,000 or more and file joint tax returns, at the same 6.85 percent rate.

For the last three years, individuals who earned more than $200,000 a year, and couples who earned more than $300,000, have also been subjected to a tax surcharge called a “millionaires’ tax.”

Under the proposal announced Tuesday, for married couples filing jointly, income from $40,000 to $150,000 would be taxed at 6.45 percent; from $150,000 to $300,000 at 6.65 percent; from $300,000 to $2 million at 6.85 percent, and over $2 million at 8.82 percent.

Changing the tax rates and brackets would allow the state to replace some, but not all, of the revenue to be lost when the so-called millionaires’ tax expires on Dec. 31.

Any increase in tax rates for the wealthy would mark a reversal for Mr. Cuomo, a Democrat, who ran for governor last year on a platform of opposing tax increases and said that increasing such taxes would hurt the state by motivating wealthy residents to move elsewhere.
Cuomo had run for office on a campaign that the state's financial problems were due to overspending and that revenues weren't the main problem. Well, this deal appears to have gone back on those earlier campaign statements. He's looking to generate revenues to close a budget deficit that is expected in the upcoming fiscal year and is doing so with a tax hike, rather than further spending cuts.

Considering that much of the state budget is dedicated to health care spending programs and transfer payments, there isn't much he can do unless the spending formulas are completely renegotiated, which is a huge mess even in prosperous times. At a time of financial strain, making changes to those formulas would be politically untenable since it would upset key unions and other key groups that are reliant on the funding.

The New York proposed tax rates are right in the range with neighboring states like New Jersey and Vermont, slightly higher than Connecticut for the top rate, and significantly higher than Pennsylvania and Massachusetts. In sum, I don't think there'll be much flight of high-income earners to other states as a result of the move, and the revenues generated will be comparable to the outgoing surtax.

Another way to view this is that anyone making up to $200,000/$300,000 will see a lower rate, and those making less than $2 million will see significantly lower rate once factoring in the expiring surtax, and only those in the true rich category will see anything approaching a hike.

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