Calls to Tax the Rich Abound. But What Exactly Does that Mean?
While Cuomo stalls action to close billions in budget gaps, some state lawmakers say it’s time for elite ultra-wealthy New Yorkers to pay more. Latest stats show the number New Yorkers making $5 million-plus grew to over 4,400 in 2018.
“Tax the rich” has turned into a mantra for some of New York’s newly empowered left-leaning lawmakers as the state faces dramatic budget shortfalls and Washington whiplashes through stop-and-start negotiations over a stimulus package.
What exactly does the phrase mean?
To Gov. Andrew Cuomo, nothing yet — even as the outbreak has so far prompted a $14.5 billion drop in state revenue. He said Oct. 7 that the state and its local governments can expect to reach a $50 billion deficit over the next two years because of the COVID-19 pandemic.
Declaring the deficit to be “caused by the federal government’s negligence” in failing to curb the coronavirus, he’s waiting for the outcome of Nov. 3’s White House and congressional elections to see what aid may be on its way from Washington.
He ruled out actions meanwhile using New York’s own power to tax, cut spending or borrow, saying any of these “would do tremendous economic damage to the state.”
Meanwhile, Mayor Bill de Blasio has publicly supported plans to tax the wealthy “at a much higher level.”
New numbers provided to THE CITY by the city Independent Budget Office show the number of ultra-rich New Yorkers on a rise pre-pandemic. The IBO counted 4,412 filers who earned $5 million plus in 2018 — up from 3,528 two years earlier.
Of those, 1,786 made $10 million or more, an increase from 1,412 in 2016. The IBO has not yet released a 2017 analysis.
In 2018, about 30,000 city income tax filers were in the elite club earning $1 million or more. In 2016, the last year for which details on taxes paid are available, the 25,000 earners at that level accounted for nearly $3.7 billion in city income taxes collected, or nearly 40% of the total.
Several Democratic members of the Senate and Assembly, predominantly from New York City and some new to an increasingly progressive Albany, are reupping proposals to tax the ultra wealthy to help shore up the state’s finances, using the sputtering discussions over a federal relief package as a rallying cry.
State lawmakers have introduced more than a dozen proposals to further tax the rich, varying in complexity and aggressiveness. They’re pushing to get the measures passed in the new session that starts in January if not sooner.
Their bills fall into three broad categories:
Boost Income Taxes
Chief among the push is to increase income taxes on millionaires.
New York’s income taxes — which is among one of the highest in the nation — are progressive, so the higher the taxable income, the more you pay. State tax records show the top 1%, earning more than $634,000 a year in 2017, paid 47% of income taxes in the state.
But the personal income tax rate caps at 8.82% for single filers who earn more than $1,077,550 or couples who earn above $2,155,350. New York City collects its own income taxes, meaning single individuals who have taxable income over $50,000 are subject to an additional 3.876%.
Some state lawmakers are hoping to add more brackets to income tax collection so those who earn more than $5 million pay increasingly more in taxes above that level.
Under the proposal spearheaded by State Sen. Robert Jackson (D-Manhattan) and co-sponsored by 21 other members mostly from the city, individuals who earn more than $5 million in New York would pay a state income tax rate of 9.62%, while those who make more than $10 million would be taxed at a rate of 10.32%.
For the hundred-odd individuals whose income exceeds $100 million, the tax rate would rise to 11.85%.
The additional tax brackets could net an additional $4.5 billion in new revenue, asserted a May report from the Fiscal Policy Institute, a left-leaning labor-backed think tank.
The bill has gotten pushback from some business leaders, who argue that increasing already top-shelf taxes on the wealthy in one state out of 50 will nudge more rich folks to reside elsewhere to lower their bills — hurting the state’s overall economy.
“It’s interesting that people believe in economics except when it doesn’t fit their arguments,” said Ken Pokalsky, lobbyist for the Business Council of New York State — who points to the common use of taxes on toxic items like tobacco products to successfully deter their purchase.
Proponents of higher taxes, he said, “seem to think prices never matter when it comes to imposing new costs on labor or new costs on taxes and they do,” Pokalsky said.
With New York City’s performing arts wealth on an extended pandemic intermission, wealthy individuals have lost a powerful magnet attaching them to do business in the city.
The dimming of the city’s cultural lights could make relocation of corporations to other parts of the country more appealing than it might once have been, depriving the city of income tax revenue from their employees.
But it’s not a given that New York would see a wealth exodus, say economists interviewed by THE CITY. They suggested that cuts to government services — an inevitability without raising more revenue — would be more likely to spur rich New Yorkers to cut ties.
“It’s always cheaper to live in Florida,” noted Dan O’Flaherty, a professor of urban economics at Columbia, naming a state that famously does not have an income tax.
“A lot of rich people live in New York because of the art scene. They live in New York because of the literary scene. They live in New York because of the excitement,” he observed — while anticipating that “the rich people will go away if Central Park is a mess and there are no theaters and the subways are not working.”
J.W. Mason, an economics professor at CUNY’s John Jay College, concurred: “They’re located here because of the amenities of the city. That’s why they’re choosing to locate in a high-cost area,” he said.
“I’m quite sure that if you drastically reduce subway service, if you stop collecting the garbage in a timely way, a lot of wealthy people are going to leave New York City for that reason,” he said.
Stocks and Assets
State Sen. Jessica Ramos (D-Queens) — elected in 2018 as part of a progressive new wave that ended Republican Senate control — is pushing a bill to tax assets as they increase in value for a select group of New Yorkers.
Currently, assets, such as stocks and bonds, get taxed when they are sold.
But under Ramos’ “Billionaire Mark-to-Market Tax,” the roughly 120 billionaires in New York would be taxed for the unrealized capital gains of their assets on a yearly basis. That means they’d be taxed as their assets increase in value, regardless of whether or not any were sold.
“This is one of the many ways billionaires hoard their money and it’s counting toward their wealth,” Ramos told THE CITY.
Massachusetts Sen. Elizabeth Warren proposed a similar plan while on the presidential campaign trail last year that would levy a 2% wealth tax on Americans with assets worth more than $50 million and a 3% wealth tax for those whose assets are above $1 billion.
Taxing ultra-wealthy New Yorkers’ assets would raise $5.5 billion a year, Ramos projected — which under her bill would be used not to shrink the deficit but to to create a workers’ bailout fund for New Yorkers who were excluded from the previous coronavirus relief package, such as undocumented indivuals.
Mason warned against more complex efforts to raise revenue, such as the wealth tax.
“The implementation problems are really pretty substantial once you start trying to tax financial wealth,” he said, noting that no system exists for assessing the value of people’s wealth with the exception of real estate holdings. “It’s much more challenging.”
Another proposal that has been around since before the pandemic would levy a 0.5% tax when companies buy their own shares of stocks. The practice, known as stock buyback, reduces the number of shares in the market causing their value to increase. Both Republicans and Democrats have coalesced behind limiting buybacks nationally.
In a similar vein, some lawmakers are to raise funding by reviving a longstanding stock transfer tax.
The tax has been on the books since 1915 and is still levied in New York. The tax generated $4 billion in the state fiscal year that ended March 31, tax records show. But since 1981, the state has refunded every tax dollar collected from stockbrokers, netting New York nothing.
Now state lawmakers want the revenue from the tax to go back to the state, to help fund the MTA, the New York City Housing Authority and state programs.
Pokalsky objected to reviving the stock transfer tax, too. Ending the reimbursement of New York’s tax “just makes no sense,” he said, pointing to the growth of the finance industry in other locations and the availability of online trading.
The fancy French phrase “pied-à-terre” translates to “foot on the ground” but is commonly used to describe a second home that’s not a primary residence.
Owners of second homes valued at more than $5 million, and co-ops and condominiums valued at $300,000 or more, would be subject to an increase in property taxes on a sliding scale, under a proposal from a pair of Manhattan lawmakers.
Other major cities, including Paris and Vancouver, have similar types of taxes in place.
The legislative proposal to tax high-end residences owned by out-of-towners has been around since 2014 and almost became a reality last year.
Arguing that it would have been “complicated” and “extraordinarily difficult” to enforce, Cuomo and state legislative leaders abandoned the proposal in favor of increases in an existing 1% “mansion tax” attached to million-dollar-plus home sales, plus a luxury transfer tax to increase state revenues.
The mansion and transfer tax were expected to generate $365 million in state revenue, much less than the $650 million a year expected from the tax on second homes.
A spokesperson for the state’s budget division did not immediately respond to questions if the mansion and transfer tax generated as much revenue as anticipated.
“What makes it different this time is the growing deficit and the lack of suitable alternatives,” said State Sen. Brad Hoylman (D-Manhattan) who sponsors the proposal.
The need for such a tax would be a “necessary way to raise revenue” if former Vice President Joe Biden doesn’t defeat President Donald Trump or if the U.S. Senate doesn’t flip into Democratic control in the upcoming elections, Hoylman said.
And the tax on second homes doesn’t have to be permanent, Hoylman added. Making it temporary could test the waters without committing to the tax long term.
“The terms of this tax aren’t set in stone in that it would be indefinite. No tax is indefinite, it could have a sunset. These types of bills are concepts that are hammered out by the negotiating parties,” he told THE CITY.
Another legislative proposal seeks to undo 2015 tax breaks, tucked into the state budget, that exempted private planes seating fewer than 20 people from sales tax and similarly exempted amounts paid above $230,000 for yachts.
The tax breaks were tucked away in the $150 billion state budget in 2015.
A coalition of labor and community groups contends that rescinding the tax break will generate $250 million for New York’s coffers, although state officials say that reinstituting the tax wouldn’t generate any new money.
“While we can’t parse out boat sales from sales tax data, we project that reinstituting the tax on boats over $230,000 would result in no new revenue as sales would just be made in other states where they’re exempt while taking away from the businesses that provide services to these vessels,” said Freeman Klopott, a state Division of the Budget spokesperson.