Lawmakers Face Question: Who Is Rich?

ALBANY – As lawmakers prepare to negotiate over Governor Pataki’s budget proposal for the coming year, they will have to answer a difficult question that could have serious implications for the state’s financial future: Who are the rich?Mayor Bloomberg, a press titan who easily passes the test – his estimated net worth is roughly $5 billion – raised the issue in testimony before a joint legislative committee late last month when he asked lawmakers to make permanent a temporary tax on personal income for the state’s wealthiest residents.According to the state tax department, the two categories of earners who qualify for the title are single filers with taxable income of more than $100,000 and married filers with taxable income of more than $150,000. And it was to these two groups that the state looked for help during the recession of 2001-2.Eager at the time for revenue, Mr. Pataki raised the personal income tax on the state’s highest wage earners even he promised to lower it back once the cloud lifted. With record revenues coming into the state treasury, the governor is now proposing to accelerate his pledge even as some have suggested keeping it in place for good.The advantage of a permanent hike in terms of revenue would be significant. According to Budget Department figures, nearly half the state’s revenue from personal income tax this year will come from the 3.5% of state residents with adjusted gross revenues – or income after deductions – of $200,000 or more. That means nearly one-third of the state’s tax receipts will come from a group roughly the size of Buffalo’s population.The tradeoff could also be significant. Some economists say that by relying on such a small segment of the population for its revenue, the state has set itself up for just the kind of jam that led it to raise the personal income taxes in the first place. The director of the Albany based Empire Center for New York State Policy, E.J. McMahon, raised this issue in testimony before the joint legislative finance committee yesterday.“The downside of depending so heavily on such a small number of taxpayers should be obvious,” Mr. McMahon said. “It means that when high-income households have a bad year, the entire state suffers inordinate fiscal stress. This is precisely what happened to New York between tax years 2000 and 2002.”Other budget hawks have greater faith in the stability of wealthy residents. They say that recent revisions of the state’s budget deficit to $4 billion from $6 billion is strong evidence that wealthy New Yorkers are not only remaining in the state but earning more money than anyone had previously expected.“What’s wrong with what McMahon is saying is that the economy affects state and local governments much more than state and local governments affect the economy,” the director of the Albany-based Fiscal Policy Institute, Frank Mauro, said. “The underlying forces in the economy are much larger than state tax policy. And if this weren’t true, then people would be hanging on George Pataki’s every word instead of hanging on Alan Greenspan’s every word.”Mr. Mauro said taxing the wealthy is not only good budgetary policy because of the high rate of return, but also more equitable because extra income at the highest tax bracket is less likely to be spent than extra income at the lower brackets. The definition of wealthy, however, is up for debate.

Lawmakers Face Question: Who Is Rich?

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