Quoted Text

New York tax collections have continued rising despite a growing income gap between its richest residents and everyone else

shutterstock_205983973.jpg
STORY HIGHLIGHTS
Most economic activity comes from consumer spending
New York for 2010 reported that its top earners — 5.6 percent with taxable incomes above $200,000 — had 43 percent of $537 billion total income statewide
Its top earners of 1992 — 5.5 percent with incomes above $100,000 — had 32 percent of $256 billion total income

ALBANY – New York tax collections have continued rising despite a growing income gap between its richest residents and everyone else, even as a national study shows overall growth in state tax receipts slowing as the income gap widens across the U.S.

State officials say New York's progressive income tax rate, which rises from 4 percent to nearly 9 percent for earnings above $1.03 million, buoys its largest revenue stream for public services and helps insulate it from the problem faced by states dependent on more regressive taxes like sales taxes.

Indeed, New York data from the oldest posted state income tax report from 1992 and the most recent from 2010 both showed tax receipts increasing from the previous year even more than the income gains of top earners.

However, the new Standard & Poor's study published Monday suggests gains flowing to the top 1 percent come at a broader cost to society, stunting overall economic growth and slowing average yearly gains in states' tax revenues.

It shows New York's annual average tax revenue growth declined from 9.26 percent between 1950 and 1979 to 8.61 percent in the 1980s, 3.83 percent in the 1990s, 5.28 percent in the last decade, and 3.28 percent so far in this decade.

According to the analysis from S&P Ratings Service, tax revenues also become more volatile as they depend more on rich people's capital gains.

While declining to immediately comment on the S&P analysis, Cuomo administration officials pointed to a 2013 report from the Institute on Taxation and Economic Policy that found all New York's state and local income, property, sales and excise taxes paid by non-elderly residents ranked the state second-most progressive, trailing only Oregon. The report cited both graduated income tax rates and refundable tax credits that mainly benefit low-income New Yorkers.

Most economic activity comes from consumer spending, a key driver of growth. But consumers have become increasingly reluctant to spend as median incomes have barely increased over three decades and remain lower than they were in 2007 when the Great Recession began. Median household incomes, adjusted for inflation, were $54,045 in July, about 4.6 percent lower than in late 2007.

By contrast, the top 1 percent of earners has prospered for more than 30 years. Adjusted for inflation, their average incomes have nearly tripled to $1.26 million since 1979, according to the IRS. But S&P notes that wealthier individuals tend to spend less of their money, meaning that states are unlikely to see much of an increase in sales tax collections.

"A phenomenally large share of income growth has been going to the very top," said James Parrott, economist at the Fiscal Policy Institute, which advocates for broadly shared prosperity. "It has worked out to the advantage of New York's budget."

Parrott said the widening wealth gap is clear. He noted that overall economic growth in the current five-year recovery from the national recession is about half the rate of previous recoveries and that's probably the result of more wealth in fewer hands. That's from the rich investing and hoarding money, instead of spending it, including hiding wealth from taxes in offshore bank accounts, he said.

When New York's various other state and local taxes are added to its income tax, Parrott said the top 1 percent pay a smaller share of their incomes than the middle class.

The S&P report said New York is among the 10 states with the highest levels of income inequality, all of which have implemented higher top marginal tax rates in the past decade, and that 1980 marked a point "where inequality began rising while the annual average rate of state tax revenue growth slumped."

New York for 2010 reported that its top earners — 5.6 percent with taxable incomes above $200,000 — had 43 percent of $537 billion total income statewide and paid 57.5 percent of the $30 billion of income taxes.

Its top earners of 1992 — 5.5 percent with incomes above $100,000 — had 32 percent of $256 billion total income and paid 43 percent of $13 billion in taxes.

In each report, as the richer New Yorkers' incomes rose 3 to 4 percent from a year earlier, statewide income tax receipts rose about 10 percent.