Albany Tax Deal to Raise Rate for Highest Earners

Will any more states follow Govern Cuomo's action? BBB

December 6, 2011
Albany Tax Deal to Raise Rate for Highest Earners
By THOMAS KAPLAN - New York Times

ALBANY — Gov. Andrew M. Cuomo and legislative leaders announced on Tuesday that they had reached an agreement to overhaul New York State’s income tax, creating a higher tax bracket for the highest-income residents and reducing the tax rate for millions of middle-class residents.

The deal came together just 25 days before the expiration of the state’s so-called millionaires’ tax — actually a surcharge on all individuals earning over $200,000 a year. The proposed tax overhaul would result in most residents’ being taxed next year at a lower rate than this year.

The long-term impact on the wealthy was described by some as a cut and others as an increase: beginning next year, the highest-income earners will be taxed at a lower rate than at present, but at a higher rate than had been expected with the expiration of the surcharge.

The changes, which the Legislature could vote on as early as Wednesday, would net $1.9 billion in annual revenue; the expiring surcharge had been generating about $4 billion a year.

It was a piece of political craftsmanship that allowed both Democrats and Republicans to declare victory.

Mr. Cuomo, who as governor has repeatedly opposed tax increases as well as proposals to renew the surcharge, released a video message on Tuesday saying that the new top bracket would help address the projected $3.5 billion budget gap that the state is facing next year.

“While I am against higher taxes, and I believe our long-term economic future for this state is enhanced by in fact lowering taxes to make us more competitive, to deal with this emergency, short-term, we do need additional revenue,” Mr. Cuomo, a Democrat, said. “If I were to close the entire gap by budget cuts, it would decimate essential services, doing real harm to the state’s economy and strangling local governments all across this state.”

On Tuesday, the governor called for a special session to begin on Wednesday at which legislators would debate and vote on the tax package.

The Assembly speaker, Sheldon Silver, a Manhattan Democrat, told reporters, “I think this is a big victory for New Yorkers. People who make $50,000 a year will no longer be paying the same marginal tax rate as people who make $500,000 a year.”

The State Senate majority leader, Dean G. Skelos, a Long Island Republican, offered his support in a written statement, saying, “This comprehensive plan will reduce the tax rate for middle-class families to their lowest levels in more than 50 years, create thousands of new private sector jobs and begin to turn our economy around.”

The agreement drew praise from an unlikely combination of business groups, which applauded the governor for devoting himself to job creation, and labor unions, which said the new revenue would help ensure that Mr. Cuomo would follow through with his promise to increase education and health care spending in the budget next year.

“We participated very heavily in reaching out to legislators to strike a deal that provided adequate revenues,” said Richard C. Iannuzzi, the president of New York State United Teachers. “It looks like they’ve done that.”

Some Democrats lauded the Occupy Wall Street movement for changing the political climate in Albany, where lawmakers had planned to allow the millionaires’ tax to simply expire.

“It’s a credit to the courage of the Occupy protesters on Wall Street, in Albany, in Buffalo and Rochester, and across the country,” said Michael Kink, the executive director of the labor-backed Strong Economy for All Coalition. “Albany is taxing the rich to create jobs, to allow better budgets and to provide tax relief for the middle class. Those are the things we were trying to make happen.”

But some liberals, inside and outside the Legislature, were dissatisfied. Billy Easton, the executive director of the Alliance for Quality Education, said the money to be raised by the new tax bracket was “not enough.” And Kenneth Brynien, the president of the Public Employees Federation, said the deal “falls short in obtaining the goal of a fair tax system.”

Some conservatives were also critical, including the Assembly minority leader, Brian M. Kolb, Republican of Canandaigua. “The bottom line is that taxes are being raised in New York State and we are still not dealing with our state’s serious spending problem,” Assemblyman Kolb said. “Tax hikes have never been the answer for creating more private sector jobs and long-term prosperity for New Yorkers.”

The deal was also criticized because it had been developed without debate, hearings or any form of public review. Mr. Cuomo announced his plans to seek an overhaul of the tax code on Sunday, via an essay he offered for publication to newspaper editorial pages, and the negotiations between the governor and legislative leaders took place behind closed doors.

Three government watchdog groups released a statement condemning the process, saying “matters of this magnitude should not be decided in secret, during the legislative hiatus and without a formal process.” Susan Lerner, the executive director of one of the groups, Common Cause New York, called the secret negotiations an “abuse of the process” that was “breathtaking in its scope.”

The state’s current income tax rates are relatively flat, taxing any individuals who earn $20,000 or more, as well as couples who earn $40,000 or more and file joint tax returns, at the same 6.85 percent rate.

But for the last three years, individuals who earned more than $200,000 a year have also been subject to the tax surcharge, paying 7.85 percent on income from $200,000 to $500,000, and 8.97 percent on income over $500,000. For couples filing jointly, the surcharge kicked in at $300,000.

Under the proposal announced on Tuesday, newly created tax rates would range from 6.45 percent for income between $40,000 and $150,000 (for married couples) to 8.82 percent for income over $2 million. Tax brackets would be indexed to the rate of inflation and would take effect next year. The new top tax bracket would extend through 2014; the others would be permanent.

Under the new brackets, New York’s top income tax rate of 8.82 percent would rank among the highest in the country, according to the Federation of Tax Administrators. It would be significantly higher than the top rate in Connecticut, which was raised earlier this year to 6.7 percent, but just under New Jersey’s top rate of 8.97 percent.

The agreement would also seek to lower unemployment by financing job-creation programs. It would allocate $50 million to help stricken areas repair flood damage, create an infrastructure fund to finance a new program of road and bridge construction and support job-training programs.

The agreement also reduces a payroll tax that helps finance the Metropolitan Transportation Authority. Mr. Cuomo and the legislative leaders said that the changes would cut taxes by $250 million, and that the state would compensate the transportation authority for the lost revenue.

Michael M. Grynbaum contributed reporting from New York.