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NY’s Tax Overhaul, Said to Raise Taxes on the Rich, Actually Doesn’t

We take a closer look at the tax overhaul passed today and fact-check the claim that it raises taxes on the rich while cutting them for the middle class.

(Photo by Chip Somodevilla/Getty Images)

The tax overhaul that New York state passed this week has been widely described in news reports as raising taxes on the rich and cutting them for the middle class — even as a win for Occupy Wall Street protesters and a possible blueprint for Congress.

But perhaps New Yorkers need to take a closer look.

Under the overhaul, which was passed on Thursday, one bracket of wealthy New Yorkers will get a bigger tax cut than the taxpayers in any other bracket. Specifically, individuals making between $500,000 and $2 million will pay 2.12 percent less in state income taxes for 2012. In contrast, individuals making between $40,000 and $150,000 are only getting a reduction of 0.4 percent, as this New York Times chart shows.

So why are the tax-code changes being cast as a win for the middle class? As is often the case when cutting through political spin, it comes down to baselines used for calculating the differences year to year.

New York Gov. Andrew Cuomo — and apparently much of the media — have been using New York’s base rate of 6.85 percent to calculate the “raised” taxes for the rich. But for the past three years, New Yorkers making more than $200,000 (or $300,000 for households) have paid the base rate along with an income-tax surcharge on top of it. It’s also known as the “millionaires’ tax,” and it expires at the end of this year.

Here’s what the tax package, known as the Fair Tax Plan, would actually do if you look at the effective tax rates and not just the base tax rate (a modified version of The Times’ chart):

Household Income 2011 2012 Difference
$40k-$150k 6.85% 6.45% -0.4%
$150k-$300k 6.85% 6.65% -0.2%
$300k-$500k 6.85+surtax=7.85% 6.85% -1%
$500k-$2M 6.85+surtax=8.97% 6.85% -2.12%
$2M+ 6.85+surtax=8.97% 8.82% -0.15%

Cuomo has said he believes the tax overhaul will help to close the state’s deficit and stimulate the economy by cutting taxes for the middle class. And it’s true; his tax plan indeed has the wealthy paying more than they would if the surtax had been allowed to expire.

But in reality, as The Times points out a few paragraphs into its story, the cuts for individuals in the lower tax brackets are modest, and the revenue to be produced by the tax-code changes — projected at about $1.9 billion — is about half of the $4 billion raised annually by the expiring surtax.

It’s not exactly surprising.  Albany generally has an irrational fear of rich people moving to Jersey City or Stamford, so “tax increases” rarely are any such thing.  Cuomo’s no dummy on that count, and I’m sure Mike Bloomberg was happy to “educate” him on such a policy.

And since only rich people would only be intimately familiar with the surtax, it’s a public relations win across the board and an overall win for the rich.

But hey, it’s better than whatever Paterson would’ve done.

What I hate most about New York politics is that Albany always seems to move on gut instinct (“we need more”), as if there’s no data available for the state’s finances, whereas the Comptroller puts out the Comprehensive Annual Financial Report (CAFR), which is outstandingly readable though long and shows pretty much every aspect of the state’s assets and debts.  There’s quite a bit to cut that wouldn’t be a service for the people, if you flip through…

How does lowering taxes at every single level help to close the state deficit?

My 8 year-old niece asked me, “how can you get more if everyone gives less?”

Fred Magovern

Dec. 9, 2011, 12:03 p.m.

Great story. Really well-done.

Would like to see a follow-up getting the politicians on record about this breakdown: to what extent was their rhetoric disingenuous? (Don’t want to presume the answer, although it seems obvious - either way, good to document and powerful complement to this story.)

This is a great piece.  Instead of being afraid of losing rich people, politicians and business alike should be worried about the loss of the middle class.  When middle income people have more,they spend more in their communities. This is not necessarily the case with the higher income set and the fact that they will get a bigger tax break than those making a fraction of that income bracket is absurd. Let it be further disclosed what those people are doing to earn this income and who really pays for it.

Cuomo is no liberal, hell, he’s not even a Republican - he’s more like a Tory.  His phony spin is mere arithmetical sleight of hand, not to say an outright lie.  How stupid does he think the people of NY are?  Obviously, stupider than “Genius”‘s 8-year-old niece.  And his justification for his gutless refusal to renew the “millionaire’s tax” is pure nonsense.  So now we have a governor who serves the 1% while trying to make it look like he’s standing with the 99%.  Get away from me, Andy, you liar!

So, this is what is called “The Fair Tax Plan” that is to replace “The Millionaire’s Tax?”  This is the tax overhaul that has been passed off as “raising taxes on the rich and cutting them for the middle class?”

The article correctly points out that the income range of $500k to $2M
received the biggest decrease in tax rates: -2.12%.  This is hardly the middle class. 

While there is not a universally-accepted definition of the middle income class, there is commonly accepted method to to determine it.  The top 20% are the upper income class, the bottom 20% are the lower income class, and the remaining 60% constitute the middle class (broken in three sub-classes).  As of 2008, this would define the middle income class as ranging from $22,758 to $110,000.

The chart provided doesn’t even go to the $22,758 income level, so there is not way to guess how this overhaul might affect them.  However, a household with $40,000 in taxable income would have paid $2,740 in taxes in 2011, and would pay $2,580 in 2012. This is a $160 reduction in taxes over the prior year—or about $13.33 a month or about 44 cents per day—hardly anything that will make a difference in closing the income and wealth gap. 

And a household with $110,000 in taxable income would have paid $7,535 in taxes in 2011 and, in 2012, would pay $7,095. This is a $440 reduction in taxes over the prior year.  This amounts to about $27 a month or $1.21 per day—again not enough to make much of a difference.

Meanwhile, those with a household income of $300,001 to $500,000 would get reductions ranging from $3,000 to $5,000 ($250 to $417 per month). And those with a household income of $500,001 to $2,000,000 would get a reductions ranging from $10,600 to $42,400 ($883 to $3,533 per month).  To me, this appears to be perpetuating the gape (and I mean “gape” and not “gap”) between the “haves” and the “have-nots”

This may help Cuomo balance his budget, but it should never be touted as “raising taxes on the rich and cutting them for the middle class.”  That would be a farcical misrepresentation.

Fred Magovern

Dec. 9, 2011, 4:51 p.m.

Seems like we all more or less agree that this is a cosmetic improvement at best. Curious to know what others propose? Not necessarily in the way of a different taxation policy, but how to implement whatever a better policy might look like.

My personal view is that citizens lobbying politicians, especially in the traditional sense, is meaningless; and that reforms in this political-economic context will never be anything other than cosmetic.

Hence, my advocacy for communities taking direct action and ignoring the sanctioned channels of change which are designed to dead-end. [Perfect case study of the political-economic elite using the ballot box in this manner would be the Democratic co-optation of the struggle in Wisconsin.]

More kool-aid and cake for the masses.

The biggest tax increase is on parents of SUNY kids, with financial aid going down and tuition and fees going up, regardless of the tax bracket. Or on the kids themselves, when they are paying their way.

Marko Manning

Dec. 10, 2011, 1:57 p.m.

Why won’t our President simply pass an executive order automatically taxing everyone making over $35,000 at a much higher rate? Based on what I have seen a family does not need any more than that amount to get by. I don’t think Obama realizes the power he has to make no-brainer decisions like this.

Fred Magovern

Dec. 10, 2011, 2:04 p.m.

Marko: You’re not playing close attention if you think Obama’s inaction, weak action or action contrary to his campaign promises is a mistake. Democrats & Republicans alike represent the same class interests. In many fundamental respects, Bush = Obama.

Marko Manning

Dec. 10, 2011, 3:52 p.m.

Obama is as close to the perfect President as this country has ever seen. I was not accusing him of inaction; please do not get me wrong on that. I just think he could do more to get the more fortunate peoples’ money to us.

New tax laws and redistribution of wealth will begin to take effect and reshape our economy to be better from 2014 if we are lucky enough to have Obama’s administration still leading the world leader-ships.

Fred Magovern

Dec. 10, 2011, 6:02 p.m.

You guys are straight delusional.

But do you know that humans always had and have 50% control over positively or negatively changing the futures reality?

Marko Manning

Dec. 10, 2011, 8:53 p.m.

We will win this election by any means necessary and we will have the power to take the wealth.

Wishful thiking of which side will be supported by Cosmic Creator humans may not know. Please be happy witho or without wealth.

How only our sane minds are capable of positively change first North-America and then, the entire world:

As humanitarian west, if we do not have existence of or we do not allow funding for heinous crime perpetrating spy agencies, KGB, CIA-type old barbarian style official killing agents when making our new foreign policies; only then, these Indian, Pakistani, Iranian dumb heads will find themselves in a situation to feel too stupid to think about making nuclear bombs or engage into blood-shedding wars etc. against each other.
Our old leaders inside Western Governments too were as negative minded as the above mentioned ones. New positive minded guys like some Readers here, Obama, even myself,  are capable of fighting wars against negative minded old regimes without war machines, Drones, bomb type weapons etc. but by usage of monetary tools and generating public awareness of the Power of Positivity in the new world politics.


Shahislam

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