By Andrew Pallotta
Over the last decade, the wealthiest one percent of New Yorkers have benefitted from the lion’s share of income gains. Yet, because of our regressive tax structure, the very rich now pay a smaller share of their income in state and local taxes than middle-class families.
Indeed, a Fiscal Policy Institute report found the state’s top earners – the 1 percent earning above $604,000 annually – pay, on average, 8.1 percent of their income in state and local taxes. Middle-class families with earnings between $35,000 and $99,000 per year are hit with tax bills that range from 11.4 percent to 12 percent of their income.
Unless the state acts, these same millionaires and billionaires are in line to receive a $4 billion tax break – a windfall that would further exacerbate income inequality, punch a giant hole in the state budget and likely trigger devastating cuts to public schools and colleges.
How did we get to this point, and what’s the solution? The so-called millionaires tax, enacted during the Great Recession, expires this year. If Albany fails to extend it, the top tax rate for high earners will fall from 8.82 percent to 6.85 percent, providing billions in tax cuts for the one percent.
Extending the surcharge to recoup that $4 billion is not enough, however. New York’s public schools remain underfunded while years of disinvestment in SUNY, CUNY and the state’s community colleges have weakened these vital public institutions.
To restore fairness to the tax code and ensure the wealthy do their part, New York should extend and expand the millionaires tax with new brackets for those earning more than $5 million a year. Doing so would generate $5.6 billion in revenue that could be invested in public education, health care and infrastructure improvements.
Tax fairness should not stop at the state’s income tax rates, however.
Hedge fund managers and partners at private equity firms now benefit from a special tax loophole created just for them. They are allowed to declare their fees as capital gains instead of ordinary income. This so-called “carried interest loophole” means about 500 New Yorkers – the upper echelon of the 1 percenters – get a tax break available only to them, while the rest of us pick up the cost.
Closing the carried interest loophole would bring in an additional $3.5 billion in tax revenue, while treating the income earned by hedge fund managers and private equity partners exactly the same as the income earned by retail clerks, nurses and schoolteachers.
For too long, the wealthy elite have used their power in Albany to win special treatment. It has deprived the state of billions of dollars in needed revenue to properly fund public schools and colleges, while placing a greater burden on the rest of us.
In the name of tax fairness, Albany should extend and expand the millionaires tax, and begin addressing income inequality by eliminating tax loopholes available only to the super-rich.
Andrew Pallotta is executive vice president of the 600,000-member New York State United Teachers.