Tax Reform Building Blocks
- Recreate 1972 Income Tax Rates.
New York’s state income tax brackets and rates are less progressive than they have been in the past. This option undoes the income tax rate cuts enacted over the past 30 years, reimposing the tax rate structure as it existed in 1972. The 1972 income tax rates ranged from 2% to 15%. Indexed for inflation, the 15% top marginal rate would apply to taxable income over $236,000 in 2006. This option would raise $6.7 billion in New York tax revenues, of which $2 billion, or 29% of the state tax hike, would be offset by lower federal income tax payments for New York itemizers. - Make 2003 Temporary Income Tax Rate Hikes Permanent.
In 2003, New York lawmakers enacted a temporary income tax surtax on the wealthiest taxpayers, with new top tax rates of 7.5% (on taxable income above $250,000 for married couples and $100,000 for single taxpayers) and 7.7% (above $500,000 of taxable income for all families) for tax year 2003. The higher tax rates are currently scheduled to gradually decrease in 2004 and 2005, and will sunset at the end of 2005. This option would make the top rates - as they were imposed in 2003, with a top rate of 7.7% - a permanent part of the state income tax. Nineteen percent of the state tax hike from this option would be offset by lower federal income taxes for New York itemizers.. - Income Tax Increase "Across the Board."
This option increases the importance of the personal income tax in New York's tax system, but does not make the tax more progressive. The option would increase all of the This option is more progressive than the "across the board" income tax hike in option 3 because part of the tax hikes on low-income taxpayers are offset by an expansion of the household credit. This change combines a 10 percent income tax hike with a $50 increase in the maximum household credit (for all those currently eligible for the credit). 12 percent of this state tax hike would be paid for directly by the federal government in the form of federal income tax cuts for New York itemizers. income tax rates by 10%, resulting in a tax hike for those currently paying state income taxes. Because the poorest New Yorkers generally pay no income tax, this option would not impact low-income New Yorkers substantially. 12% of the state tax hike from this option would be offset by lower federal taxes for itemizers. - Tax Unearned Income at a Higher Rate.
Until 1988, New York taxed earned and unearned income under separate rate schedule, with a lower top rate on earned income (12 percent) than on unearned income such as capital gains and dividends (14 percent). This option re-imposes a higher income tax rate schedule on capital gains and dividends. These income sources are taxed at a rate 1 percentage point higher than other income sources, so income that would be taxed at 6.85 percent under the regular income tax would instead be taxed at 7.85 percent under this option. Because wealthier New Yorkers receive most dividends and capital gains, this is a very progressive tax increase. A substantial portion of this tax hike never comes out of the pockets of New York taxpayers, but is paid by the federal government in the form of lower federal tax liability for New Yorkers.
- For more, go to http://www.itepnet.org/ny9.pdf
In a 2005 public forum, sponsored by the Task Force, Assembly Member Kevin Cahill summarized some of the changes that occurred over the past 30 years or so, including the shift in the state income tax structure, which has reduced the tax rate put on the relatively small number of people in high-income brackets, increased the income tax rate on the rest, and shifted the support of social services (including education) from income to real property taxes. Escalating Medicaid costs, of which 10-12% is shifted to the counties, also affects the ability to fund education. In 1979, federal aid to education was about 16%, which fluctuated in intervening years, and is below 4% today. This has resulted in inequity of tax burden at the local level, resulting in elderly people and the young unable to maintain a home and losing diversity in our communities, as well as inequitable educational services in school districts with low funding resources.
The state should fund education, asserts Cahill, using existing structures such as the Dept. of Education to define a Basic Quality Education (BQE) and determine the local cost of such, maintain local control of school programs and any additional funding beyond BQE, have annual school budgets submitted to the DOE with a 10% growth cap over 5 years. There would be fewer unfunded mandates since the state would pay as well as mandate, though Cahill pointed out that the largest "unfunded mandate" is in fact the employee compensation provided in contracts approved by the local school board. The lottery revenues are used exclusively for school aid, prizes and administration, though the school aid portion is not the full amount. He suggested that the existing BOCES system could be used to provide services for special ed students (the cost for this student population having doubled in recent years), coordinate transportation services and equipment purchases for school districts, and streamlining other programs/services.
About 150 people attended our 9/16/05 meeting with Senator John Bonacic on his bill #S164, which proposed a voluntary county-by-county plan that allows voters to eliminate the property tax for school funding on all primary residences, set up a county administering Board of Education with weighted voting and representation from each school district, and replace local costs of public education with a countywide income tax. Before any county vote to accept or turn down the voluntary program, the Dept. of Taxation would calculate tax rates under a new system. Bonacic's program would take 1 1/2 years to implement. (The current funding formula is based on federal aid, which has reduced over time, state aid at $19.4 billion, and the balance from local property taxes.) #S164 has since been withdrawn.
Bonacic asserted that a statewide program was not feasible because there is a negative impact from the current method of school funding in only a limited number of areas, whose legislators would not support change. The problem areas are Nassau and Suffock counties, the Hudson Valley and Catskills. He said that his bill is a work in progress, and that moving primary homeowners to an income tax system would broaden the tax base and establish a more equitable funding source based on the ability to pay. Relying on sales tax for school funding would increase the sales tax to an estimated 20%, which is neither equitable nor feasible. Increasing tax rates on the wealthiest 10% of the population, who now pay 60% of the taxes, is also not feasible since it would likely cause them to relocate. He also wants to redefine tax exempt properties (one out of every three NYS properties) to increase the tax base and eliminate inequities and landbanking; implement better fiscal and management practices; and reduce school costs through regionalization. The new county BOE would decide the funding distribution based on written explanations and oversee school budgets.
The highlights of the lively question session, moderated by Dean Gerald Benjamin of SUNY-New Paltz, included: The idea of capping property taxes by 3% was earlier proposed, and defeated, at the time the STAR program was enacted. The state lottery revenues for school aid is at $16.8 billion and has doubled since begun in 1982. The county school income tax paid would be federally deductible as with property taxes now. There needs to be school accountability, but education would continue to be controlled by the individual school districts. Annual school budget voting would be eliminated - unless a district requested funding beyond the county BOE distribution, when the local district residents would approve/ disapprove the additional financial request. The aim of the bill was not to reduce school funding, since a high-quality education is essential; increasing business taxes to provide more school funding might reduce competitiveness and cause companies to leave the state.