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Talk of 'millionaires' tax' expands to not-so-rich

Just how much money does it take to be rich in this state?

What started as a debate over whether to hit the wealthy with higher income taxes to help balance the state budget has expanded to talk of a "millionaires' tax" on households with annual incomes exceeding $250,000.

That means a tax plan originally focused on 36,000 of the state's wealthiest residents would extend to nearly 300,000 additional households, according to 2006 state tax figures, the most recent available.

For many lawmakers, particularly upstaters, the choice is relatively easy: Tax the few higher-income residents of their districts rather than tell constituents why so many popular programs are being cut.

"I think the issue is that, over the last 10 years or so, the amount of tax money paid by [wealthy people] is not the same as the rate paid by working families," said Sen. Antoine M. Thompson, a Buffalo Democrat who said his district has 70 $1 million-plus households.

He has co-sponsored legislation to raise taxes on those making more than $250,000 per year -- which some estimate would raise an additional $6 billion in revenues for the cash-strapped state.

Proponents also see a tax fairness issue: Why should someone making $45,000 a year pay the same tax rate -- 6.75 percent -- as someone making 10 or 20 times that amount?

The campaign, dubbed "Fair Share Tax Reform," has attracted some of the state's most powerful interests: unions representing teachers, state workers, and health care workers, plus hospital trade groups, among others. That group includes the small but influential Working Families Party, which is spearheading the public face of the effort.

Lining up behind the campaign is the Democratic-controlled Assembly, which already has backed a millionaires' tax -- twice. It also has strong backing in the Democratic-led State Senate, although some liberal Democrats -- especially those from Long Island, where a $250,000 annual salary doesn't go anywhere nearly as far as in Buffalo or Niagara Falls -- have shied away from the push.

And with good reason, critics say. Raising anyone's taxes during an economic implosion is risky business, they argue. In 2003, when the state last imposed a temporary surcharge on wealthy residents, the economy was on the upswing. Now, it's in a recession.

Critics also note that the richest 1 percent of state residents paid 41 percent of state income taxes in 2007, up from 26 percent a decade earlier.

B. Thomas Golisano, the Rochester billionaire businessman who opposes increasing taxes on the wealthy, says he has been "extremely amused" by the rhetoric in the debate.

"Fairness is just an excuse to take from one group of people and spread it to another," he said.

The Buffalo Sabres owner says he is certain higher taxes on upper-income people will dissuade corporate executives from wanting to stay -- or relocate -- in the state. He also said the number of Fortune 500 companies that have left over the decades correlates directly with the state's reputation for high taxes.

"If you want to drive those people away, tax them higher," Golisano said.

He also predicted charitable donations would take a hit with a bigger tax.

"If I had moved 10 years ago, I think Western New York would say, 'Gee, we didn't get $115 million he contributed,' " Golisano said of his charitable donations.

Some charities, already struggling to raise money in a troubled economic climate, are worried about whether their wealthy benefactors would continue to give.

"We have a fair reliance on individuals who have incomes above $250,000," said James Tilley, chairman-elect of the United Way of Buffalo and Erie County. "My sense is that private industry as well as charitable organizations will fare better if individuals are allowed to determine where they want their money to go, which is another way of saying I think lower tax rates are better."

>Millionaire localities

So where do the wealthy live?

A tax on millionaires could almost be dubbed a "Manhattan tax."

According to 2006 figures from the state Department of Taxation and Finance, Manhattan had 16,000 millionaire households, or 22 out of every 1,000 households. Westchester County followed with 6,900 millionaire filers, or 21 out of every 1,000 households.

Upstate, the story changes.

In Erie County, the 611 millionaire filers represent only 1.6 out of 1,000. Niagara County had 52, or 0.6 out of 1,000 households, with 16 in Cattaraugus County and 26 in Chautauqua.

But expanding the tax to those earning more than $250,000 would multiply those numbers. In Erie County, for example, 6,600 households had incomes of $250,000 to $1 million in 2006, while Manhattan had 99,000 such filers.

While not ruling out the tax increase, Gov. David A. Paterson, has been the loudest voice against it. The timing, he contends, is wrong and could drive wealthy people from the state. The economic downturn, his budget office projects, already is taking its toll as projections show the number of millionaires in the state will drop by nearly 10 percent this year from last year.

A tax increase, he has said, also would be "counterintuitive" to the federal stimulus package intended to jump-start the economy. He also warned that the state could "rue the day that we tax the rich if the rich, who are the job creators in New York, stop doing it."

Still, Paterson has sent mixed signals. Friday, in the latest twist, he suggested he wants a broader reworking of the state's income tax system so that lower-income and upper-income residents do not pay the same tax rates. But he made no specific proposal.

>Tax overhaul difficult

The Legislature's most forceful advocate for the tax increase has been Assembly Speaker Sheldon Silver, a Manhattan Democrat. Cuts in health care and education, he pointed out, would not hit the wealthy.

"We call upon them to pay a little more" to help the state get through its fiscal crisis, Silver said.

He also claimed that "no evidence" shows that raising the tax would prompt the rich to leave the state. After the 2003 temporary surcharge, he noted, the number of millionaires actually increased.

"And, no matter whose polling you follow, 80 percent of people in this state support that proposal," Silver said of the tax increase.

He has signaled an interest in lowering the Assembly's threshold below the $1 million level, but hasn't settled on a number.

Other ideas include a more comprehensive reshaping of the state's income tax rates, including lowering rates for lower- and middle-income taxpayers. But such a major overhaul could be logistically difficult with the governor insisting on meeting the March 31 deadline for a new budget.

Democrats are not united on the issue, and Senate Republicans, who are narrowly in the minority, appear unwilling to provide any votes to push the issue in that house.

"It would encourage an exodus of companies and jobs from New York," said Assemblyman Robin Schimminger, D-Kenmore, chairman of the Assembly's economic development committee.

Thompson insists he is not pushing for higher taxes on the wealthy to spend more money, but rather to make the tax code fairer, to add money to the state's rainy day fund and to eliminate some of the more than $500 million in "nuisance" tax increases that Paterson has proposed.

While saying he would prefer to limit the increase to incomes exceeding $1 million, Thompson described the new, $250,000 level as part of the "art of compromise."

e-mail: tprecious@buffnews.com

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