{UAH} YOU MUST REMEMBER THAT NEW YORK HAS BEEN LOOSING PEOPLE TO OTHER STATES DUE TO CRIME THE MOST

If Biden’s agenda passes, New York will have the highest top taxes in nation — 66.2%

By Alex Durante

November 9, 2021 5:23pm 

President Joe Biden has sought to pass an enormous social spending bill.Susan Walsh/AP

If Congress passes President Biden’s social spending bill, New York will have the highest marginal tax rate in the nation — and among the top in the world.

Details of the proposal are constantly changing, as lawmakers from various factions of the Democratic caucus continue to raise concerns about the tax hikes. But the current iteration of the plan in the House would raise the top marginal tax rate in New York to 66.2 percent.

This eye-popping figure could drive current New York taxpayers to other states and depress its tax base. To borrow a phrase from the President: this would be a big deal.
The policy proposal is a bit complex. But in short, the Build Back Better plan would impose a surcharge that specifically targets high-income taxpayers: 5 percent on their modified adjusted gross income (MAGI), defined as adjusted gross income less investment interest expense, in excess of $10 million. Taxpayers would face an additional 3 percent surcharge on their MAGI above $25 million, for a total surcharge of 8 percent.

Given that a large share of income for top earners is generated through their investments, especially for those in the financial industry, this surcharge could reduce capital gains realizations and actually reduce the tax base.

New York’s top marginal tax rate could go up to 66.2 percent is the bill that’s in the House passes.Seth Wenig/AP

While we lack precise data on how many taxpayers earn above these thresholds, data from NY’s Department of Taxation and Finance helps shed some light on how many taxpayers in NYC could be impacted. Their data shows that currently just over 30,000 taxpayers in NYC earn more than $1 million. This group paid more than $10 billion in state taxes in 2019, representing nearly half of the state’s tax collections from the city.

In a state that has already experienced one of the largest out migrations of any U.S. state over the past year, this tax increase could push rich NYC residents over the edge. Losing even a fraction of this tax base would start to eat away at that $10 billion the state currently raises from them. It would also make the state’s financial sector smaller and could influence these institutions to start looking for a new home in sunnier, more tax-friendly havens.

Additionally, the Democratic plan would redefine the tax base to which the 3.8 percent net investment income tax (NIIT) applies. In its current shape, this tax applies to “passive income,” or investment income, such as income earned from stocks and bonds. But certain kinds of businesses are exempt from the NIIT. Under the BBBA, this tax would apply to the “active” part, or the labor part, of business income for all taxable income above $500,000 for married filers.

High taxes in NY could push top earners out of the state.Mary Altaffer/AP

In practice, this would mean that a New Yorker who is a limited partner in a law firm, for example, who is currently exempt from the NIIT, would face this additional 3.8 percent tax on his income above that threshold.

The top federal marginal rate tax rate under current law is scheduled to increase from 37 percent to 39.6 percent starting in 2026, which applies to most filers earning more than $500,000. New York already imposes one the highest state tax rates on personal income in the country at 10.9 percent, and high-income taxpayers living in New York City face an additional 3.9 percent city tax.

Given that NY state’s tax base is heavily reliant on these taxpayers, adding the tax proposals under the BBBA to an already punitive state tax system would be unwise. Driving taxpayers away from New York would not help the state Build Back Better.

Alex Durante is an economist at the Tax Foundation, a nonpartisan think tank in Washington, D.C.

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