The right-leaning Empire Center for Public Policy and the left-leaning Fiscal Policy Institute are on opposite ends of the political spectrum, as well as on different sides of the tax debate. But there is one issue they both agree on: If New York state gets tax policy wrong, there will be a further exodus of taxpayers.
Where the two think-tanks differ is on who will be doing the leaving and why.
In his blog, the Empire Center’s E.J. McMahon wrote of the state budget, “In addition to a soak-the-rich tax hike, which threatens to aggravate leakage of heavily taxed millionaire earners from New York’s tax base, the agreed-upon budget as summarized by Cuomo features eye-popping spending numbers.”
Indeed, the legislature passed the largest state budget in history, coming in at $212 billion.
But it’s the additional one-percentage point personal income tax hike that McMahon says will increase the “leakage” of the rich from the state.
What’s more, argues McMahon, is that this increase is happening to many of the same people who will be affected by the elimination of the SALT deduction – which, according to his estimate – will mean that the state-local income tax bite on millionaire incomes in New York City will be between 53% to 68% higher than it was in 2017.
Jonas Shaende, chief economist at the Fiscal Policy Institute, agrees with McMahon that SALT could be a problem, but it doesn’t outweigh the benefits of the tax increase.
“Despite some people leaving and taking some of the money off the table, the increased tax rates are going to still deliver higher revenue,” he said. “It’s possible that SALT will affect the same group of people, but they are already doing very well and it’s a federal issue. Plus, there are several work-arounds in place.”
McMahon responded that only about 40,000 people would be eligible for the work-arounds.
Still, Shaende told Capital Tonight if investments are not made immediately in communal infrastructure, New York will not only lose its competitive edge, it will lose its workforce.
“There are some things that can push people out, including quality of life and an erosion of services,” Shaende explained. “When it comes to the rich, especially the ones who are building businesses and are hiring people, they need that entire economic ecosystem under them to prosper.”
Shaende says if the labor force, which uses mass transit, public schools, libraries and other services paid for by taxes, are choosing to flee the state for a better life, some of the wealthy will likely follow them.
“We can’t just wait and see. We are risking our competitiveness. Unless we invest in it, we risk New York becoming a legacy brand,” he said.