Was last week the beginning of the end of the tax gusher that has filled city and state coffers? No one knows, but the debate over what is happening, why and what to do about it is more important than ever.
The first piece of bad news came when Gov. Andrew Cuomo and his frenemy state Comptroller Thomas DiNapoli announced that state income-tax collections for the fiscal year ending in March will fall a worrisome $2.8 billion below initial projections. The governor said he believed the primary reason was that very rich New Yorkers were either leaving the state or changing their residence for tax purposes because the Republican tax bill makes living in high-tax states like this one so fiscally onerous.
Later in the week, the city reported its income-tax revenue in the fiscal year ending in June would be $935 million below the previous year’s.
Mayor Bill de Blasio and city Comptroller Scott Stringer said the shortfall is primarily in taxes paid on dividends and capital gains and is likely the result of the stock market’s swoon in December. The mayor continues to push for raising income taxes on millionaires, so what else could he claim?
For the state, the weakness in personal income taxes is a big and immediate problem because they account for 65% of all state taxes. It is less of a problem for the city, where personal income taxes provide 21% (22.7% in fiscal 2018, an outlier). But if the state has to reduce education and other local aid as a result, it will become a big problem at City Hall too.
The challenge with figuring out the cause of the shortfall is that data on how many multimillionaires paid taxes in New York last year won’t be available for more than a year. By then, the state will have made a crucial decision: to increase, extend or maybe even reduce its millionaires tax, which generates more than $4 billion a year by levying an 8.82% rate on single filers earning more than $1 million and couples earning more than $2.1 million.
Remember: Wealthy people living in New York City share with their counterparts in California the dubious honor of paying the highest state and local income-tax rates in the country: about 13%.
The debate is likely to be a face-off between those who are concerned that New York’s exceptionally high taxes have finally become intolerable to the rich and those who want to shrug off the news and demand more proof than the rich are fleeing.
The choices will be tough, but wouldn’t the best course be to adopt the Hippocratic oath and first do no harm to the state’s and the city’s long-term future?