Back on Jan. 19, Governor Cuomo presented an Executive Budget calling for a temporary $1.5 billion personal income tax increase targeted at New York’s highest earners.
The left-leaning Democratic supermajorities in the state Assembly and Senate countered with proposals for an eye-popping array of $7 billion in tax hikes, mostly targeted at high earners.
The only question left was how far the once-domineering, now politically damaged governor would go to make a deal.
We now know the answer: pretty far.
The budget for the fiscal year that began April 1 reportedly will include much larger income tax increases than Cuomo originally proposed.
The governor has agreed to raise the state’s existing personal income tax rate from 8.82 percent to 9.3 percent on incomes of just over $1 million for individuals and $2 million for joint-filing couples; 10.3 percent on incomes of $5 million; and 10.9 percent on incomes of $25 million or more. New York City’s highest earners will now pay the highest combined state and local income taxes in the country.
Cuomo also agreed to raise the state corporate tax rate on the most profitable New York firms from 6.5 percent to 7.25 percent, partially undoing a rate cut that was a signature accomplishment of his first term.
While the corporate rate hike reportedly would sunset after three years, the personal income tax increases wouldn’t expire until the end of 2027 — which, given recent Albany precedents, is tantamount to never.
Adjusting for the very tight cap on state and local tax (SALT) deductions in the 2017 federal tax law, New York’s effective marginal tax rate already stood at an all-time high.
Raising the state tax bite by up to 24 percent — an average of $640,000 a year for the 1,786 New York City households in the $10 million bracket, based on 2018 data — could provide a final push out the door for an unknown number of high earners.
Most of them already own second (and third) homes in lower-taxed jurisdictions. And all of them are familiar with the legally airtight checklist of steps needed to shift tax “domiciles” to a lower-taxed state while retaining a part-time New York residence.
Not by coincidence, Cuomo and the Democratic governors of six other high-tax states, including New Jersey, last week released a joint letter imploring President Biden to restore the SALT break within the package of tax hikes expected to fund Biden’s forthcoming $1 trillion “American Families Plan.
Biden’s press secretary replied that the SALT fix “will cost money,” but the administration would be “happy to hear their ideas.” Which could mean only one thing: raising federal income tax rates higher than Biden already plans, so New York’s top earners can cut their (increased) state tax bills while paying the feds more.
One way or another, it looks like the full extent of the economic damage wrought by Albany’s next state budget will be decided largely in Washington.
E.J. McMahon is an adjunct fellow at Manhattan Institute and senior fellow at the Empire Center.