New York Governor Andrew Cuomo practically begged the rich to return to the city last year.
“‘We’ll go to dinner, I’ll buy you a drink, come over, I’ll cook,’” he said in August.
The offer still stands, but the embattled politician now expects them to pick up more of the tab.
State lawmakers and Cuomo reached an agreement to raise taxes as part of a $212 billion budget deal announced on Tuesday.
Under the deal, the top tax rate would temporarily increase to 9.65% from 8.82% for single filers earning more than $1.1 million. Income between $5 million and $25 million would be taxed at 10.3% and for more than $25 million it would be 10.9%. The new rates would expire in 2027.
With New York City residents also paying city taxes, the combined top rate for the highest earners would be between 13.5% and 14.8%, surpassing the 13.3% rate in California, currently the highest in the nation, according to the Tax Foundation.
Overall, experts say the increases, along with federal levies, would mean that the richest New Yorkers would be hit with a combined marginal rate of 51.8% — higher than levels in some European countries.
“Employers and employees alike are increasingly mobile, and raising taxes on newly mobile taxpayers is a risky proposition,” said Jared Walczak, the vice president of State Projects at the conservative Tax Foundation. “High earners in particular have considerable flexibility, and many already temporarily relocated during the pandemic. Raising tax rates on the most mobile cohort of taxpayers is a good way to lose many of them outright.”
New York’s move is the latest attempt to target the wealthy in the U.S. to fund budget shortfalls or future spending. The nation's richest people continued to reap financial gains even as the Covid-19 pandemic wrecked parts of the economy. American billionaire wealth increased $1.3 trillion in the 11 months since mid-March 2020, an increase of 44%, according to data from the Institute for Policy Studies, at a time when much of the world grappled with soaring unemployment and financial distress.
Americans earning more than $400,000 a year are already bracing for higher federal taxes from the Biden administration, which has also proposed raising the corporate levy to 28% from 21%.
Increasing levies at the state level though brings a different dynamic.
Prior to Covid-19, there were concerns that residents would leave when a tax overhaul passed by Republicans and signed by President Trump in 2017 capped state and local tax deductions at $10,000.
In a press briefing Wednesday, Cuomo said he expects the tax increases in his state budget deal to be offset by a repeal of the federal cap on state and local tax deductions. When that happens, net taxes will be 37% lower, he said.
“When you talk about this tax package you cannot talk about it without anticipating a SALT repeal,” Cuomo said. “When SALT is repealed, the taxes will be going down.” The third-term governor said he has spoken to New York’s congressional representatives and President Joe Biden, and “fully” expects a SALT repeal.
When the pandemic hit, some of the most affluent people in the city fled to other parts of the state, such as the Hamptons, while others moved to Florida or Texas, which don’t levy income taxes. The exodus has fired up real estate markets and even led New York City restaurateurs to open Palm Beach locations.
Now, with the vaccine increasingly prevalent, there are signs people are returning.
But there’s concern that some will make their moves permanent, especially as low-tax states court hedge funds and banks.
“Cuomo is making a bet that the wealthy won’t leave the state even if he raises taxes on them,” said Andrew Silverman, a tax analyst with Bloomberg Intelligence. “That’s a risky bet. It’s almost certain that people will leave the state and the city as a result of these tax increases. What’s different this time is that jobs are so mobile that people, especially wealthy people, don’t have to work where they live.”
Even though New York's budget crisis never materialized, state officials are moving forward with a tax increase that will bring the top income tax rate in NYC to 14.776%.
The biggest risk is that high earners don't come back post-pandemic. Why make it a self-fulfilling prophesy?
—Jared Walczak (@JaredWalczak) April 5, 2021
The total number of those leaving may be tiny compared to the overall population, but New York City and New York state get a disproportionate share of tax revenue from the wealthy. The state is home to more than 90 billionaires, according to the Bloomberg Billionaires Index, and the city has more than 30,000 millionaires.
The top 1% of New Yorkers reported a combined $133.3 billion in income in 2018, the latest year of data available, according to the city’s Independent Budget Office. They paid $4.9 billion in local income taxes, making up 42.5% of total income tax collected by the city.
In 2018, 1,786 tax filers earned more than $10 million or more—and the top 1%—about 38,700 taxpayers—earned almost as much as the bottom 90% of New Yorkers.
This article was provided by Bloomberg News.
