If the “millionaires’ tax” enacted by the State Legislature in 2011 is not extended next year, its expiration will result in a $2.7 billion revenue loss for the state budget. Ironically, failure to extend it would give the richest 1% in the state a $3.7 billion windfall and those with annual incomes between $40,000 and $300,000 a tax increase adding $1 billion to the state’s coffers, according to the Fiscal Policy Institute.
Before the 2011 millionaires tax, the state’s top tax rate was flat at 6.85% for all households with annual incomes of $40,000 and higher. With the 2011 tax changes, the rate dropped slightly to 6.45% – 6.65% for those with incomes between $40,000 and $300,000 annually even though it was 6.85% for households between $300,000 and $2 million annually. The rate rose to 8.82% for those with incomes above $2 million. So, technically the tax is the $2 millionaires tax.
The major budget issue in next year’s state budget will be how to address the expiration of this tax which is automatic without action by the Legislature. Governor Cuomo will be under tremendous pressure from the progressive wing of his party to extend the tax. Any effort to not roll it back could have big political ramifications for him as he considers running for a third term in 2018. The Governor has moved to the left in the past year but he has to worry about a challenge from the left , especially in light of the recent scandal in his administration that has weakened him. The scandal has resulted in charges by federal prosecutor Preet Bharrara against two of Cuomo’s top aides as well as the heads of several businesses which were top Cuomo campaign contributors and whose leaders were charged with bribery.
The Fiscal Policy Institute is proposing a 1% Plan for Tax Fairness which would increase rates for those with annual incomes from $665,000 and above, raising their rates to 7.65 – 9.99%. This proposal would increase state revenues by $2.2 billion according to FPI. The state has a 2% tax cap though which means that additional revenues above the cap have to be returned to taxpayers. FPI says state tax revenues will grow by more than 4.5%. With Medicaid and school aid increasing by about 4%, other budget areas have been held flat or cut in recent years. FPI is calling for the tax cap to be scrapped to accommodate higher spending for increasing needs.