New York is facing a $14.5 billion budget gap this fiscal year, federal relief dollars don’t appear to be forthcoming, and schools and local governments are facing deep budget cuts. The coronavirus pandemic – and the financial nightmare it created – prompted some progressive lawmakers and activists to double down on a question that New York has been weighing for years: Should we increase taxes on the state’s wealthiest residents?
For left-wing activists and many Democratic state lawmakers, “tax the rich” has become a rallying cry over the past few months as the state waits on a federal stimulus package. They argue that rather than withholding billions in state aid to schools and localities, New York should pass a number of bills that would increase income taxes on millionaires, tax vacant second homes in New York City, or even reinstitute sales taxes on private jets and yachts.
But Gov. Andrew Cuomo has made his resistance to increasing taxes on the wealthy well known, arguing that the proposals raised so far wouldn’t generate enough revenue to fill the deficit, and on top of that, increasing the tax burden of New York’s wealthy residents could drive them out of the state. At a City & State webinar on Thursday, state Sen. Gustavo Rivera said just because these proposals wouldn’t entirely solve the state’s budget deficit, it doesn’t mean New York should turn up its nose at the additional revenue. “Even though we may not be able to ‘tax our way out of it,’ it lessens the hit,” Rivera said, adding that he wanted proposals that would raise taxes on the rich, such as the pied-à-terre tax or wealth tax, to be passed soon.
Recently, Cuomo suggested he might consider raising taxes on the wealthy as part of the solution in a worst-case scenario where federal funding doesn’t come through. But he has maintained that a federal stimulus package remains critical to New York’s recovery. State Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie, however, have released statements supporting raising taxes on the wealthy.
But when it comes to the actual mechanics of increasing taxes on the rich, the state has a number of options. Of the more than a dozen bills already introduced in the Legislature that would raise different taxes on the rich, some advocates for taxing the wealthy said that six proposals should be prioritized in the state’s immediate response to the pandemic. “We had to give the Legislature something digestible, so what we wanted to focus in on were the six bills that raise the most money,” said Charles Khan, organizing director of the Strong Economy for All Coalition, a group of labor and community organizations advocating for policies that address economic inequality. “We just wanted to include a combination that a lot of different New Yorkers could get behind, that was really targeted at the very, very, very top of income earners in New York state. Because we know that regular people are struggling, but the really wealthy people are $77 billion richer since the pandemic,” Khan added, citing one recent analysis that showed how much New York’s billionaires had increased their wealth between March and June.
If New York really does want to “eat the rich,” here’s what’s on the menu.
Raising income taxes on millionaires
One option for taxing the wealthy would be to increase the income tax on New York’s millionaires, adding higher income tax brackets for those making over $5 million, $10 million and $100 million annually. Currently, the highest state income tax rate is 8.82% for any individual making over $1 million. While several versions of this kind of proposal exist in the state Legislature, the most aggressive increases were included in a bill sponsored by state Sen. Robert Jackson and Assembly Member Linda Rosenthal. Under that legislation, people who make more than $100 million in taxable income would face an 11.82% income tax rate. Make Billionaires Pay, a progressive campaign urging the passage of this and other taxes on the rich, estimated that this tax increase would raise $2.5 billion to $4.5 billion annually.
On Thursday, New Jersey officials announced that the state would pass a version of a millionaires tax hike in response to widening economic inequality – causing some to put pressure on New York to reassess its own income tax brackets in the wake of the pandemic. Responding to those calls, state Budget Director Robert Mujica noted in a statement Thursday that the 12.6% combined city and state income tax rate in New York City – where he said most of the state’s billionaires live – is already higher than both New Jersey’s new tax rate and what state lawmakers including Jackson and Rosenthal proposed.
Another proposal that is hardly new to New York is the pied-a-terre tax – legislation that would tax the owners of vacant second homes in New York City worth at least $5 million. That legislation, sponsored by state Sen. Brad Hoylman and Assembly Member Deborah Glick, came relatively close to passing in the Legislature last year but was ultimately shelved in favor of a “mansion tax” on the sale of pricey homes that is expected to generate $365 million annually. The pied-à-terre tax, however, was expected to generate $650 million per year.
Khan suggested that the pied-à-terre tax, along with approving higher taxes on most millionaires, may be among the most likely bills in the package to pass the Legislature, in part because state lawmakers were already familiar with them. “I think those are the things that are the easiest. (State lawmakers) talk about them every year and say they’re so progressive, and they’re going to do them,” Khan said. “I would say those are the closest to being passed. They have a lot of widespread support across both houses.”
While the term wealth tax is sometimes thrown around to refer to any tax hikes on the rich, there is a specific proposal in the state Legislature that is technically called a wealth tax. A bill from state Sen. Jessica Ramos and Assembly Member Carmen De La Rosa would create a “mark to market” tax on New Yorkers with more than $1 billion in net assets. Currently, when the value of someone’s assets increases, they only face a capital gains tax when the asset is sold. This legislation, however, would tax unrealized capital gains, so that if an asset increases in value by $1 million, that $1 million is treated as taxable income even if the asset isn’t sold. The tax would bring in an estimated $5.5 billion per year, and the revenue would fund a worker bailout fund for people excluded from traditional unemployment benefits and wage protections.
Stock buyback surcharge
Another proposal that dates back to before the coronavirus pandemic would impose a 0.5% tax on corporate stock buybacks. The practice of companies using extra cash to repurchase their own shares – thereby lowering the number of shares in circulation and increasing the value of each share – has been attacked by progressive lawmakers and labor advocates as corporate greed, when companies could be using excess cash to increase the wages of workers, for example. This proposal, sponsored by state Sen. Jen Metzger and Assembly Member Yuh-Line Niou would raise $3.2 billion annually.
Stock transfer tax
Similar to the stock buyback surcharge, a stock transfer tax is basically a tax on stock trades. While the tax exists in New York, it’s currently rebated to taxpayers. Legislation sponsored by state Sen. James Sanders Jr. and Assembly Member Phil Steck would repeal the rebate, allowing the state to collect 100% of the tax on stock trades. But previously attempts at repealing the rebate haven’t been successful, with many roadblocks including strong opposition from Wall Street.
Corporate landlord tax
Finally, state lawmakers have proposed a corporate landlord tax that would tax real estate purchases by private equity firms and hedge funds, imposing the equivalent of a mortgage recording tax on those purchases. When a person buys a home in New York with a mortgage, they pay a tax “for the privilege of recording a mortgage.” But because purchases of investment real estate properties are often structured differently – not using a traditional mortgage – an equivalent recording tax does not exist when a private equity firm, for example, invests in real estate. Legislation sponsored by state Sen. Julia Salazar and Assembly Member Harvey Epstein would impose a fee on mezzanine debt and preferred equity – two types of financing used in these kinds of real estate purchases.