Pity New York’s rich people.
Influential elected officials at the city, state and federal levels are all pushing their own plans for new income taxes on high earners. And with gaping budget holes and a generally liberal political environment nationally and locally, it’s looking increasingly unlikely that anyone’s going to stop them.
“It’s time to pile on—when in doubt, just go after where the money is” said Joseph Strasburg, president of the Rent Stabilization Association, a major landlord group fighting the tax hikes. “The feds are gonna go. The state, in my mind, regardless of protestations—it’s going to be very difficult, because it could be the budget closer.” He added that it would be difficult, in his opinion, to block a hike in the city as well.
Politically, the move toward new taxes on the wealthy is both natural and expected. The gap between the poor and the rich has grown in recent years, and years of Republican rule on the federal and state levels brought taxes for high earners down considerably from where they were 15 years ago.
And given that the most onerous of these taxes would affect around just one-half of 1 percent of the state population, it’s a big winner among voters. With massive budget gaps at all levels of government—the city and state need a combined $18 billion to balance their budgets—elected officials feel the time is ripe.
“You have right now all three levels of government talking about taxes in a very progressive way, a way that reflects those who have the least should not be required to do as much as others, and that is fair and appropriate,” said Council Speaker Christine Quinn.
Ms. Quinn is pushing a proposal that would raise the city’s personal income tax for the New York households that earn more than $297,000 and lower it for those who do not make enough to pay federal income taxes.
The question for New York—and a point tax opponents are trying to push—is whether the new taxes would be high enough to drive the rich out of town, depriving the state and city of the very wealth from which they are seeking to raise income.
The academic studies on this question suggest that, indeed, new income taxes do drive some wealthy out of state, but not enough to counter the overall goal: to raise new revenue.
“We found pretty strong and convincing evidence that rich elderly people do move in response to taxes,” said Jon Bakija, a professor at Williams College who studied the issue. “But we also find that the effect seems to be relatively modest, so not that many people move.” Based on his 2004 study of the rich elderly, Mr. Bakija said that for every 1 percent hike in income taxes on the high earners, “you end up with between 1 percent and 4 percent fewer rich people living in your state.”
Still, the combination of the city- and the state-proposed income taxes would represent a rather large increase if both were enacted, particularly for those in the highest brackets—Ms. Quinn’s plan calls for a 1 percent hike on households making over $1.2 million, and many Democrats in the Legislature are pushing a plan that raises taxes by 3.45 percent on families making over $1 million. (This is to say nothing of President Barack Obama’s proposed 4 percent hike on the highest tax bracket nationally.)
With that compounded burden, Connecticut and New Jersey, which generally have lower tax rates while still allowing residents to commute into the city for work, might look considerably more appealing.
Which raises the intriguing proposition that the only people who can effectively advocate for Those About to Be Soaked may be the very same liberal politicians planning to do the soaking.
Asked about the prospective of a perfect storm of taxation on upper-income New Yorkers, Ms. Quinn seemed at least willing to entertain the possibility of altering her plan.
“We are going to follow after the state to see what the state does,” she said. “I think that, although I very clearly believe that those who make more have to help out at times like this, we still have to be mindful of a piling-on effect, and even for a multimillionaire, there is some point at which, with A, B, C tax increase, tax increase D will be too many.”
So is she backing off her plan already, should the state adopt a new tax increase?
No, she said. “We just have to see what happens.”