[NYAPRS Enews] DG: Millionaires Eyed As NYS Budget Fix

[Harvey Rosenthal]

Raising Tax On Rich Gaining Ground 

Millionaires Eyed As Budget Fix

BY SARA FOSS Gazette Reporter  February 22, 2009

 

Gov. David Paterson has said that he will not consider raising taxes on
the wealthy to help plug the state's budget gap.

   But some observers believe support for a so-called "millionaire's
tax" is picking up steam.

   "There's a lot of momentum," said Dan Levitan, a spokesman for the
Working Families Party, a group that strongly supports higher taxes for
the rich. "It would adjust the high end of the New York state tax
bracket, and help postpone devastating budget cuts."

   E.J. McMahon, director of the Empire Center for New York State Policy
and an opponent of a millionaire's tax, questioned whether the political
winds were shifting. "I think people are working hard to give the
impression that there's this rolling band wagon that's picking up
steam," he said.

   Earlier this month a group of Democratic senators introduced the Fair
Share Tax Reform Act of 2009, an initiative that would increase taxes on
New Yorkers making more than $250,000 a year.

   Right now, every New Yorker who earns more than $40,000 pays the same
marginal tax rate of 6.85 percent; the Fair Share Tax Reform Act would
create new income tax brackets for individuals or families making more
than $250,000, $500,000 and $1 million, at 8.25 percent, 8.97 percent
and 10.30 percent, respectively. The senators estimate that the Fair
Share Tax Reform Act would raise more than $6 billion in additional
revenue.

   "There is increasing support for this in the Legislature," said Frank
Mauro, executive director of the Fiscal Policy Institute in Latham.
"There's a set of reasons coming together, that people are articulating,
and that people understand. That's why there's increasing public support
for a progressive income tax."

   Polls suggest that public support for a millionaire's tax is strong,
but that support begins to decline when the tax is applied to lower
incomes.

   A Quinnipiac University poll released last week showed that 79
percent of New York voters support a millionaire's tax - a higher state
income tax on people making more than $1 million a year. The poll also
found that 72 percent of voters support raising taxes on people making
$500,000 a year, and that 56 percent of voters support raising taxes on
people earning $250,000.

   According to the poll, a majority of voters - 51 percent to 34
percent - would prefer to cut state services than raise taxes. SOAK THE
RICH

   Progressive groups have long called on the state to enact a
millionaire's tax.

   "We think it should be part of the package of balancing the budget,"
Mauro said. He said that during a recession a millionaire's tax is the
"least damaging type of action a state can take," and that it's
preferable to cutting services. When times are tight, the overall goal
is to raise the level of spending and keep people employed; budget cuts,
on the other hand, reduce spending. Compared to the poor and middle
class, the wealthy spend a much smaller fraction of their income, which
is why it makes sense to raise their taxes - the impact on overall
spending wouldn't be as great, he said.

   Mauro said that during the Pataki years, the state moved to more of a
flat tax, eliminating brackets at both the bottom and top end of the
income tax scale. Now the lowest-income New Yorkers pay a 4 percent tax
rate on their taxable income, while the wealthiest pay 6.85 percent, he
said. "As we've reduced the progressivity of our taxes, the income
distribution is concentrated more at the top," he said.

   McMahon is opposed to any tax on higher-income earnings, but he is
particularly opposed to the Fair Share Tax Reform Act, which he views as
extreme.

   "There's a fairly significant difference between someone who is
making $250,000, and someone who is making $1 million," McMahon said.
"They're talking about a tax increase that would impact substantially
more people [than a millionaire's tax]." He added that under the
proposed tax people would have to pay a lot more money - for instance,
wealthiest earners would see their taxes increase by about 50 percent -
and that high-income New Yorkers are feeling the economic pinch, too.
"They're giving less," he said.

   Elizabeth Lynam, deputy research director for the Citizens Budget
Commission, said that the millionaire's tax proposal is actually losing
steam. "The immediate pressure to pass a millionaire's tax is lessened,
because a lot of federal aid will be flowing to the state," she said.

   "There are issues with the Fair Share Tax Reform Act," Lynam
continued. "It applies to incomes much lower than a millionaire's tax.
It's quite a steep tax hike."

   McMahon said that a tax on millionaires would only exacerbate the
state's financial problems, by making wealthy New Yorkers more likely to
relocate to less expensive states. Many of these people own multiple
homes and wouldn't even have to move - they could simply change their
domicile, the residence they consider their permanent home, he said.

   "This proposal shows how much people forget about New York's past
history," McMahon said. "This is like a family of alcoholics talking
about how we ought to bring in more scotch. We're one of 50 states,
surrounded by states with lower tax rates. People don't sit still for
this. There's a wealth of economic research suggesting states lose their
economic growth to other states if they hike taxes."

   Lynam echoed this. "[ Wealthy] people are more mobile," she said.
"The financial services industry is shrinking. These households are
under pressure." BAIT AND SWITCH

   McMahon said he thinks the Fair Share Tax Reform Act is too extreme
to pass the Legislature, and wondered whether the bill was proposed
simply to make other proposals seem more palatable. "I question whether
it's a bait and switch," he said. "Compared to this bill, anything looks
reasonable."

   McMahon said Paterson needs to put forward a plan for a permanent
reduction in spending.

   "In a normal world, the state would be less likely to [pass a
millionaire's tax] because it will be receiving money through the
stimulus bill," McMahon said. "No tax increase is really necessary,
unless you think the budget is going to grow by 5 to 8 percent. ... The
problem is that we've built up expectations for the size of government."

   Lynam said tax increases that are not paired with budget increases
are harder to justify, and that the state needs to reduce spending
significantly. "The federal government has decided to help the state out
in a major way, and people want to see that the money is well used and
that the state is prepared to do the hard work that's necessary," she
said.

   The state budget deficit for next year is estimated at $14.2 billion.

   Some observers suggested that Paterson is sending out mixed signals,
and that he may be willing to reconsider his position on a millionaire's
tax.

   During his keynote address earlier this month at a banquet hosted by
the state Association of Black & Puerto Rican Legislators, Paterson
said, "To those of you who are not here, who think you are too wealthy
or too influential or have too great of a title to be part of New York's
budget-balancing formula, let me make you aware that every New Yorker
will share in the sacrifi ce to get this budget passed."

   But after his speech, Paterson's spokesman, Errol Cockfield, told
reporters that the governor had not changed his position.

   The Fiscal Policy Institute belongs to a coalition, called the
Omnibus Consortium, that wants the Legislature to enact the Omnibus
Property Tax Relief and Reform Act, which would restructure the state
income tax and use the additional revenues to reduce local property
taxes. The bill would create a middle class circuit breaker, which
limits a person's property taxes to a fixed percentage of their income,
and phase it in over a period of four years.

   Mauro said that New York's income tax is progressive, but not
progressive enough to balance out the state's regressive sales and
property taxes. If passed, the Omnibus Property Tax Relief and Reform
Act would change that.

 

http://www.dailygazette.net/standard/ShowStoryTemplate.asp?Path=SCH/2009
/02/22&ID=Ar00903&Section=Local_News 

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