Does New York need more millionaires, or more relief for middle-class taxpayers?
How you answer that question will determine whom you side with in the fight over Gov. Andrew Cuomo’s plan to extend the state’s “millionaires tax,” a levy vehemently opposed by Senate Republicans who never miss a chance to side with the wealthy.
The surcharge on higher incomes, first imposed in 2009, was tweaked in 2011 to apply to those making more than $1 million and extended through 2017 to bring in about $4 billion annually.
Let it expire, and the state will have to make up that revenue by raising taxes and fees on everyone else, or by slashing real services no matter how many times fat cats yell, “Cut the fat.”
The governor has warned that the first casualty could be the middle-income tax cuts that also were part of the big-picture plan to make taxes more fair. In other words, millionaires would get a tax cut while the middle class gets a tax hike to balance the budget.
The second casualty would be hikes in school aid, a perennial scare tactic, but also a reality check for those who think government funding comes from the revenue fairy. Someone has to pay. The only question is who?
The GOP cloaks its aversion in the rationale that the tax drives millionaires out of New York State. But that argument now has been proved specious by researchers from Stanford University and the U.S. Treasury Department.
In a study published last year in American Sociological Review, they looked at 45 million tax records of top earners from 1999 to 2011 to determine whether progressive taxation drives out millionaires. The conclusion from “Millionaire Migration and Taxation of the Elite” is that such flight occurs, “but only at the margins.”
Instead, their most striking finding “is how little elites seem willing to move to exploit tax advantages across state lines.” In fact, they found, millionaires actually move less than others, partly because they have more business and family ties to their communities.
When weighing the small percentage who do move against the revenue raised by a high-earners tax, the study concluded that states have a lot of room to raise rates even more before reaching any tipping point that might make the tax hikes counterproductive.
That’s just what the liberal Fiscal Policy Institute advocates, noting that because of the regressive nature of sales and property taxes, New York State’s lower- and middle-income families pay a greater share of their income in total taxes than do those in the top 1 percent. It found that lower- and middle-income families pay 10.4 percent to 12 percent of their income in state and local taxes, compared with just 8.1 percent paid by those at the very top.
To level the paying field, it proposed not just extending the surcharge, but making it even more progressive.
Of course, opponents have their own data. A 2014 report from the conservative Empire Center said the number of millionaires in New York increased by just 14.6 percent in 2012, a rate half the national average and last among all 50 states. Critics will use such numbers to harp on the need to abolish the tax.
But put the two studies together, and the course of action should be clear: Maybe New York won’t grow as many millionaires, but the lower and middle classes will be a lot better off.
Who would oppose that trade-off?