New York City millionaires will soon be subject to the country’s highest tax rate after Governor Andrew Cuomo and state legislature leaders finalized a budget Tuesday that calls for raising local income and corporate taxes, expected to raise an additional $4.3 billion a year.
The result of New York’s effort to address pandemic-era budget shortfalls is that the richest New York City residents will pay the highest combined state and city tax rates in the U.S.
The New York Times reported that the budget calls for two new personal income tax brackets, set to expire in 2027. Individuals making over $1 million and couples earning over $2 million will see tax rates climb from 8.82% to 9.65%. Those earning between $5 million and $25 million will be taxed on 10.3% of their income, and the rate increases to 10.9% for those earning more than $25 million.
New York City already has a top income tax rate of 3.88%, which means wealthy New Yorkers will now be paying between 13.5% and 14.8% in both state and city taxes, exceeding what was previously the highest top marginal income tax rate in the country: 13.3% for top earners in California.
Meanwhile, middle class New Yorkers are seeing reductions in their income tax rates, which could allow them to divert more dollars toward retirement accounts.
Per an April 6 release from the Governor’s office, in 2021, the fourth year of the multi-year tax cuts enacted in 2016, state income tax rates have been lowered from 6.09% to 5.97% for taxpayers filing jointly in the $43,000-$161,550 income bracket, and from 6.41% to 6.33% in the $161,550-$323,200 income bracket.
“These cuts are expected to save 4.8 million New Yorkers over $2.2 billion this year. When the cuts are fully phased in, middle class taxpayers will have received an income tax rate cut up to 20%, amounting to a projected $4.2 billion in annual savings for six million filers by 2025,” the release states. “As the new rates phase in, they will be the State’s lowest middle-class tax rates in more than 70 years.”
Embattled Gov. Cuomo has resisted raising taxes on corporations and the wealthy for years out of fear it would drive them to other states—like Florida, which has no state income tax. A Nov. 2020 report from Bloomberg found if all the wealthiest New Yorkers fled the city, they could take more than $133 billion with them, which is how much the top 1% of New Yorkers—about 38,700 taxpayers—earned in 2018. They paid $4.9 billion in local income taxes, making up 42.5% of total income tax collected by the city.
Speaking Wednesday during a budget briefing, Cuomo downplayed the tax increase for the wealthy by hinting that a net reduction in taxes for the wealthy might actually be the case if the federal government were to restore deductions for state and local taxes, known as SALT.
“When you talk about this tax package you cannot talk about it without anticipating a SALT repeal,” Cuomo said. “When SALT is repealed, the taxes will be going down.”
An analysis conducted by the Tax Foundation estimates SALT repeal would cost $600 billion in revenue over the course of a decade, with the largest relief benefitting the top 1% of earners.
As the New York Daily News reports, Cuomo and other democratic governors have called on President Biden to make the change and once again allow taxpayers to deduct all of their state, local and property taxes from their federal returns.
While the President appears at least open to the possibility of SALT repeal, the Biden Administration has frequently raised the possibility of personal income tax hikes on Americans making over $400,000, and a federal “wealth tax” is certainly not out of the question. Were that to happen, the richest New Yorkers could end up paying more than half of their earnings in taxes.
SEE ALSO:
- Bernie Goes After Billionaires Again with New Tax
- ‘Millionaire Tax’ Coming to N.J.—Will Other States Follow Suit?
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.