Tuesday, March 10, 2009

NYC TAXES | Plucking the Golden Geese

March 10, 2009–French Finance Minister Jean-Baptiste Colbert, the second after Fouquet to serve under Louis XIV, said that the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.

The golden geese in New York City are the top 1 percent of NYC taxpayers, the 41,282 filers earning $500,000 or more. They pay 47.8 percent of the $7.3 billion collected by the city in income taxes. The concentration of golden feathers is much greater now than in 1993, when approximately the same share of taxes, 47.6 percent, was paid by more than five times as large a share of taxpayers, the 5.5 percent earning $100,000 or more.

Why has the concentration of taxpayers become so much more intense? Three explanations come to mind: (1) Inflation ($100,000 ain’t worth what it was in 1993). (2) The financial bubble, which in recent years was good to top-earning New Yorkers. (3) The number of NYC personal income-tax filers, which has increased to 4.1 million from 2.7 million in 1990.

One thing hasn’t changed much–average personal income tax rates in Manhattan are higher than in the other boroughs. Back in 1993, the average effective tax rate was 3.05 percent–3.58 percent in Manhattan and less than 3 percent in all of the other four boroughs.

NY City and NY State officials are seeking to raise tax rates further on the highest categories of personal incomes. Council Speaker Christine Quinn has proposed boosting the city's income tax from 3.65 to 4.25 percent for those earning $297,000 or more; to 4.45 percent for those making $532,000 and to 4.65 percent (a percentage-point increase) for the $1.2 million league and above. Comptroller Bill Thompson is supporting higher taxes for the top category.

Albany legislators are also seeking to raise the state income tax -- from 6.85 percent to 8.25 percent for people making a minimum of $250,000; 8.97 percent for those making $500,000 and above in taxable income and 10.3 percent for those at the $1-million-and-up level.

NYC’s budget director, Mark Page, has argued that the City’s golden geese have wings and can fly. He says:
The basic concern is how do you collect revenue from New York City's tax base if you have a relatively small group of individuals paying a very large proportion of your income-tax revenue.
A consoling fact for New Yorkers is that state and local taxes have been deductible against income on which federal taxes are imposed. But there is a question about what new tax rules will emerge from the budget debate that is taking place in Washington.