The New York State Senate and State Assembly recently approved one-house budget bills in their respective chambers. Despite the good efforts by the U.S. Sen. Majority Leader Chuck Schumer and the American Rescue Plan that was signed by President Biden to deliver billions of dollars in federal aid that will help close the state’s budget deficit, the Legislature is trying to make the state’s personal income tax (PIT) rate the highest in the country and increase business taxes for the first time since the early 1990s.
Each proposal would raise about $7 billion in additional revenue. The Legislature is seeking a graduated tax hike on millionaires, ultimately escalating to 11.85 percent which would be the highest level since the late 1970s. Joint filers reporting more than $2.15 million of income would jump to 9.85 percent. In the Assembly, a new bracket between $5- $25 million for joint filers would be taxed at 10.85 percent and incomes of more than $25 million would be set at 11.85%. In the Senate, the rate would be 10.85 percent for incomes between $10- $50 million and 11.85 percent for more than that.
Combine these new rates with New York City’s 3.88% tax rates and the marginal tax rates become the highest in the nation. But that’s not all! The Assembly and Senate both want a new 1 percent surcharge for capital gains for millionaires and an increase in corporate taxes. The Assembly would impose an 18 percent surcharge on the existing corporate franchise tax. And the Senate would raise the corporation franchise, corporate utility and insurance tax rates to 9.5 percent on incomes of more than $5 million.
The Assembly is also pushing for a new tax on pied-a-terres (high-value second homes) in New York City and a 4 percent increase in the Estate Tax. If approved in the budget, these taxes will hinder our economic recovery, deliver another blow to a business community that has been ravaged by the pandemic, and ironically lay the groundwork for increased taxes and fees on the middle class at some point in the future. As demonstrated in a recent survey by the Siena College Research Institute, Long Island CEOs are facing increasing costs and concerns over taxes amidst declining demand, revenues and profits. That should serve as a red flag to state legislators because any efforts to raise taxes will slow down the post-COVID recovery of our economy and chase individuals and businesses out of the state.
Now more than ever, we need to help businesses survive and reopen and not place any more burdens and taxes on them. Successful residents account for most of the state’s income tax base. The highest-earning 5% of filers contribute more than 60% of the revenue that is raised. Despite the efforts of some politicians to demonize the affluent, the simple and undeniable truth is that they are indispensable to the health and success of our entire state. In a world forever changed by COVID-19, most people are adapting to a remote way of doing business and people and employers with means are mobile.
Rather than pursuing tax policies that will incentivize wealthy individuals and important employers to leave, we need tax policies that foster a better business climate and encourage our residents to stay living and working here. If high net worth individuals and businesses leave for cheaper pastures, it won’t be long before the middle class has to pick up the slack and replace the tax revenues that will no longer be paid to state coffers. It also won’t be long before we lose jobs and lose tax revenues critical to funding the same educational, housing and other social services programs the Legislature is seeking to boost with these unnecessary tax hikes.
As the state budget negotiations continue, the Legislature should be grateful for the federal aid that will rescue the state from its multi-billion-dollar budget deficit, and they should forgo raising taxes and creating new taxes.
Kevin S. Law is president & CEO of the Long Island Association.