The “millionaire’s tax” may become permanent. Here’s what that means
The “millionaire’s tax” may become permanent. Here’s what that means
While the new session of the New York state Legislature won’t convene until January, incoming state Senate Majority Leader Andrea Stewart-Cousins has indicated one policy she intends to keep in place – the “millionaire’s” tax.
Back in 2009, when New York was in the throes of recession, former Gov. David Paterson and the state Legislature enacted a higher income tax rate for high earners – alternatively referred to as a Personal Income Tax (PIT) high-income surcharge – as a temporary measure to close a budget deficit. At that time, the highest bracket applied to individual and joint filers earning $500,000 and more, imposing a new tax rate of 8.97 percent on that group. The highest tax rate before this was 6.85 percent for those earning above $40,000. The plan also included a new bracket for joint filers earning more than $300,000 (and less than $500,000), carrying a rate of 7.85 percent.
All of this was meant to be temporary, set to be phased out in three years. Instead, the so-called millionaire’s tax has persisted, albeit with some adjustments each time it has been extended, but with less support than it had when the state was navigating a post-recession fiscal crisis. While New York, and the New York City region especially, has no shortage of rich people whose tax contributions can add a significant bump to the state’s revenue, there is now a concern that higher tax rates for the state’s top earners will cause New York’s most affluent residents to flee – especially in view of the new federal tax policy that includes a cap of $10,000 on state and local tax deductions, another blow to high-income New Yorkers.
While Stewart-Cousins seems determined to maintain tax rates, Gov. Andrew is taking his time, telling the Times-Union that he likely wouldn’t decide his position on extending the high-income surcharge until next year. The Assembly, which maintained its healthy Democratic majority this November, is expected to support at least an extension, if not an expansion, of the millionaire’s tax. For now, the millionaire’s tax is set to remain in place until the end of 2019. Here are the essentials about its past, present and future.
What is the millionaire’s tax?
What started out as a temporary surcharge for those earning more than $500,000 annually has been transformed. In 2017, the last time the higher tax rates were extended, Cuomo and the state Legislature settled on a top tax bracket of more than $1 million for individuals and more than $2 million for joint filers. The tax rate for both was set at 8.82 percent – notably, a slight decrease from the original top rate enacted by Paterson.
Despite Cuomo’s reluctance to back the millionaire’s tax after 2019, he’s been a fairly consistent supporter of it in the past. While campaigning for his first term, Cuomo actually came out against the tax, but quickly changed his tune when he first took office and renewed it in 2011. The revenue the state gains by taxing high earners allows Cuomo to advance tax cuts and other benefits for the middle class, which may score the governor political points. “If you don’t renew the millionaires' tax, that’s $4 billion,” Cuomo said before he secured a second extension in 2017. “We have a middle-class tax cut that we couldn’t do if you don’t extend the millionaires' tax.”
How much money does it bring in?
When Cuomo says $4 billion, he’s right on target. Estimates of just how much the millionaire’s tax puts in the state’s pocket vary from $3.7 billion to $4.5 billion. What’s clear, however, is that the revenue from taxing millionaires at a higher rate amounts to a large portion of the state’s overall tax revenue.
If higher tax rates for millionaires survive beyond 2019 – whether through another temporary extension or a permanent one – the revenue could create a billion-dollar surplus in the state budget. That revenue could also, of course, fund more tax cuts to the middle class or spending priorities.
Who supports the millionaire’s tax?
While Cuomo has been a supporter of higher tax rates for high earners in the past, some have ventured a few steps further, arguing not only for a permanent extension of the tax after 2019, but actually more tax brackets to distinguish between the rich, the ultra-rich, and the uber-rich. When the state Legislature debated an extension of the tax in 2017, Democrats in the state Assembly put forth a plan that included new brackets for people earning over $5 million and over $100 million. That top bracket of $100 million would have a tax rate of 10.32 percent.
Groups like the left-leaning Fiscal Policy Institute supported this plan from Assembly Democrats, arguing that it takes this kind of progressive tax policy to address income inequality that has grown consistently since 1980, not only in New York but across the nation and the fact that other local taxes, such as the sales tax, falls disproportionately on lower-income households. “The best response to the regressive nature of New York’s overall state and local tax system is to make the personal income tax more progressive,” reads a paper by the Fiscal Policy Institute released in 2017.
Ultimately, the more progressive tax policy failed, and lawmakers settled on a extension of the 8.82 percent rate for millionaires, whether they earned $1 million or $500 million. Still, groups like the Fiscal Policy Institute and the Working Families Party will likely continue to support higher progressive taxes.
What’s the argument against it?
The downside to taxing the ultra-rich is that not every state does it. New York has a disproportionately high number of millionaires, with most living in New York City and Westchester. But with higher taxes – and the new cap on state and local tax (SALT) deductions – some conservatives and pro-business activists worry New York’s highest earners will pack up and leave.
“The millionaire’s tax was supposed to be a temporary surcharge to get the state through a post-recession fiscal crisis,” Kathy Wylde, president of the business-focused Partnership for New York City, told Politico last year. “Albany needs to understand the potential negative impact of a tax rate that is higher than almost any of our domestic and global competitors when it comes to attracting talent and jobs.”
The Citizens Budget Commission, a think tank that promotes fiscal restraint, has also argued that the millionaire’s tax poses a threat to New York’s retention of high earners. “When the millionaire's tax was previously extended, we advocated for the state extending it at a rate below 8.82 percent and reexamining the extension if federal tax changes were enacted,” Maria Doulis, vice president of the Citizens Budget Commision, wrote in an email.
When the federal tax law changed earlier this year, CBC released a report, arguing that the federal Tax Cuts and Jobs Act made New York less competitive against states and cities with lower tax rates, providing another reason to end the higher tax rate for millionaires. “The surcharge should be allowed to expire as planned, supported by accompanying spending reductions,” it read.
Of course, some progressives would counter that fewer rich people contributing to New York’s crisis of unaffordability wouldn’t be such a bad thing and that crumbling infrastructure, which could be ameliorated with more spending, poses a bigger risk to the state’s business environment.
When is the high-income surcharge set to expire?
The extension approved by Cuomo in 2017 is set to expire at the end of 2019, giving lawmakers relatively little time to come to a consensus once the new Legislature convenes in January. Cuomo has said that a decision likely won’t come until next year. Still, an extension may be in the offing, with new state Senate leader Stewart-Cousins already hinting at her support, and a newly unified Legislature behind her.