“We will not raise income taxes this year,” Governor Hochul declared in January at the opening of the 2023 legislative session in New York.
Given that she has a record $19 billion in excess reserves, that should be an easy promise for the governor to keep, “this year,” at least. But to avoid future tax increases, Hochul will need to rein in her spending in his upcoming budget negotiations with the Legislature.
For starters, the governor’s proposed budget of $227 billion was inflated, reflecting an influx of temporary federal aid over several years and a record increase in capital gains tax payments during the Wall Street bull market of 2020-21. The choppy stock market crash since 2022 and the continued prospects of a recession in the next 12 months led Hochul to significantly lower its revenue estimates for this year.
Last week, Hochul’s budget office and legislative fiscal committee staff agreed to a “consensus” revenue forecast increase of $800 million. But the governor continues to project a fiscal 2025-27 budget deficit totaling nearly $21 billion, more than enough to burn through every dollar of cash reserves by the end of her current term.
However, for the Democratic supermajorities in the Senate and Assembly, $800 million is just an appetizer. Most of them want to spend more, billions more, on everything from transit subsidies to rental assistance, health care and expanded benefits for migrants.
So where will the money come from? The legislative left, at least, has a ready answer: “tax the rich.” Among other proposals, 19 senators and 27 assembly members co-sponsor a bill that would create 10 new tax brackets on income starting at $450,000, with a maximum rate of 24% on income above $20 million.
A marginal rate of 24% (more than triple the top tax in 2008) would be unprecedented in any state: it would nearly triple New York’s top rate as of 2020. Sure, it’s unlikely to pass anytime soon, but as an indicator Where many state legislators (including nearly half of the Senate majority) would like to head from sends an unwelcoming signal to tax-sensitive millionaires considering their continued presence in New York.
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More than one percent of New York have already gotten their foot in the door since the pandemic struck three years ago. After averaging 658 a year between 2016 and 2019, the number of millionaire taxpayers leaving the state jumped to 1,973 in 2020, falling to a still-abnormally high 1,453 in 2021, according to new data from the state Department of Taxation and Finance.
The out-of-state turnaround was highest among those with incomes above $25 million, who took the biggest hit under an income tax increase to absorb the wealthy passed in 2021 as part of Governor Cuomo’s latest budget. More than 8% of New York-based taxpayers in this category moved out of state in 2021, up from less than 6% in 2020. In the three years before the pandemic, the departure of these mega-earners had not exceeded 2.5%.
Separate IRS data shows that New York’s share of the nation’s income millionaires dropped significantly from 2011 to 2020. As of 2020, the top 1% of New York residents still paid 46% income tax. the rent. In the wake of the pandemic, the state government has become more dependent on them than ever.
Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie may not insist on higher taxes, but they will surely push spending beyond the governor’s target. Without additional tax increases one way or another, adding billions to Hochul’s budget would force her to borrow from a future in which there are likely to be relatively fewer millionaire earners in New York to foot the bill.
Hochul spent her first 18 months as governor describing lawmakers as her “partners,” even agreeing to a pay raise that makes them the highest-paid Legislature in the country. Her reward was the Senate’s recent scathing rejection of its chief justice nominee.
In the days leading up to the start of the next fiscal year on April 1, you should find it easier to start saying “no.”
McMahon is an Adjunct Fellow of the Manhattan Institute and a Founding Senior Fellow of the Empire Center for Public Policy.