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Friday, February 25, 2011

Higher Taxes Destroy The Tax Base- The New York State Edition

Will the last wealthy person leaving New York state please turn off the lights? While the leftists across the country are tied up in their underwear trying to find ways to punish success with over-taxation, New York has lost taxpayers at an alarming rate. Actually it's not all tax payers, just the ones who pay the highest taxes.

Most of the state coffers in this country are close to insolvency; New York is closer to the edge than most.

Being one of the "bluest" of states in 2009, New York's lawmakers adopted a surcharge on personal income taxes for those making more than $200,000. As The Partnership for New York City, an organization dedicated to maintaining NYC as the world's business center, explains it:
This surcharge increased the top personal income tax rate by 31%. It was intended as an emergency measure to help the state through the economic recession of 2008–2010, when tax receipts plummeted. The surcharge was structured to sunset after three years, at the end of 2011, to mitigate the impact of this significant tax increase on affected taxpayers, who tend to be major contributors to job creation and employment in the state
Many progressives are now calling for that "millionaire's tax" to be extended or even permanently added to the New York state tax law (it's called the millionaires tax even though 76% of the people who pay it are not millionaires.)

The "leftist bible" the New York Times recently editorialized:
As we said, New York would get an estimated $2 billion of additional revenue in the upcoming fiscal year if it extended the personal income tax surcharge that applies to couples making more than $300,000 and individuals making over $200,000. (A couple with two school-age children and taxable income of $350,000 would pay $3,500 more. A couple making $1 million, with two children and typical deductions, would pay about $20,500 more.) Wealthy families got a generous break from Washington with the extension of the Bush-era tax cuts. Mr. Cuomo should extend New York’s surcharge for two more years.
Why do progressives always call it a "break" when people are allowed to keep their own money. New York already has the second-heaviest state tax burden in the country, according to the Tax Foundation.

Also calling for an extension to the tax is the progressive leadership of Big Labor who hope to use the tax as away to avoid labor having to pay their "fair share" of the burden.
One such group, the Strong Economy for All Coalition, will formally open next week with a $5 million budget, backed by S.E.I.U. 1199, the powerful health care workers’ union, and the United Federation of Teachers, the New York City teachers union...A second coalition, called Growing Together New York, and joining dozens of labor, environmental and community groups, will focus more directly on opposing Mr. Cuomo’s cuts, while also agitating for the extension of the income-tax surcharge. The coalition will be spearheaded by New Yorkers for Fiscal Fairness, a liberal advocacy organization whose backers include CSEA, formerly the Civil Service Employees Association, the largest union of state workers, and New York State United Teachers, the statewide teachers’ union.
The leftists are ignoring one key question about the "taxing problem." What if you raised taxes and there was no one around to pay it? After all, the "rich" have been leaving the state for "places where the tax burden is less" for years.

According to the The Partnership for New York City
Between 1998 and 2008, a net total of more than 1.7 million New Yorkers chose to relocate, taking with them their wealth and talent. More income has left New York than any other state in the nation — $71.7 billion from 1993 to 2008. For every dollar that migrated into New York from other states during that period, $1.71 left — the highest of any state.

Between 1999 and 2008, according to a study by the Center on Wealth and Philanthropy, the average net worth of households leaving New York State was roughly $338,000. For those households moving from New York to Connecticut and New Jersey the average net worth was about $625,000 and nearly $653,000, respectively.

A significant portion of the relocation from New York was to Florida and Texas, two states with no state or local income taxes, a very low cost of living, and a reasonable and predictable regulatory environment in which to conduct business. Both states have prospered as a result.
Since the "millionaires' tax" was passed things have gotten worse. The number of New York taxpayers worth $1 million or more fell 9.4% from 2007 to 2009, from 381,786 to 345,892. It will only grow worse if the surcharge is extended.

The report does show that some wealth moved into New York between 1993 and 2008, but it was not enough to replace what was lost. For every dollar of income the state gained, $1.71 left. No other state had a worse ratio.

So the progressives may get their way and increase the tax burden on New York but it doesn't mean they will get the revenue they are looking for because the part of the "soak the rich" strategy that progressives never consider is that the upper incomes they want to over-tax can afford to pick up their toys and go elsewhere. And with their "toys" they bring their tax revenue, their job creating businesses, and the best hope to fix the economy with them.


Soquel by the Creek said...

A great post.

We face the same set of issues here in California where a solid majority of voters are insulated from the cost of running the state while a electorally insignificant minority foots the bill. In California, the mechanism is called the Personal Income Tax (PIT), which is heavily progressive. The top 2% of taxpayers pays 50% of the PIT bill. An electorally insignificant 33% of taxpayers contributed 94% of the entire bill. Meanwhile, the 2/3rds majority contributed just 6%.

Here is one of my posts on the subject from July 2009. I need to update it with more recent numbers but the general principles still apply.

California doesn't need to lose many of these taxpayers before there is a major budget crisis.

Even the California Legislative Analysts Office realizes that this over-reliance on a small minority of taxpayers results in wild swings in revenue and leaves the state vulnerable to permanent budget shortfalls.

Unknown said...

The demographics of the drain on New York are stunning. Upstate New York, the long-repressed and struggling region north of NYC and Long Island (i.e. the vast majority of the land), has seen particularly hard declines and in fact has been losing population. New York's government loves this because it means they can have a permanent foothold on power.