Our Own Tax Hell

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Feeling down in the dumps today? If you live or work in New York, you’re not alone. It’s April 15, Tax Day, and New Yorkers are paying far more in federal and state taxes than most Americans, with planned increases in the works.

Not only that, but New York State comes in close to the bottom, 42 out of 50 states, in federal spending per dollar of taxes paid, receiving only 79 cents for each dollar New Yorkers send to Washington.

Some might say that this is only fair — after all, aren’t incomes in New York higher than in other states? In some sectors, yes, but New York City is a particularly expensive place to live — the most pricey in America, according to a survey this month by the Economist Intelligence Unit — so higher incomes are partly absorbed by higher living expenses.

Last year New York households paid $29,900 in taxes, or 23% of income, $6,500 more on average in federal taxes than the typical American household. New Yorkers also paid far more in state and local income taxes: $17,000 on average for a New York household. That’s $5,800 more than the national norm.

In all, New York households face an average income tax burden of almost $47,000, which is 37% of their income, $12,300 more than the average American household.

This doesn’t include Social Security taxes, which add another 12.4% up to a wage level of $102,000; Medicare taxes, which add another 2.9%; and real estate and sales taxes.

Unsurprisingly, New York State, which paid $168.7 billion in federal taxes ($8,700 per person) in 2005, fifth in the nation, received less, $144.8 billion, in return, making taxes one of New York’s main exports. It’s enough to give unfair trade a whole new meaning.

The average New York household makes nearly 19% more than the average American one. The 2007 national household income average was $108,000, and New York’s was $128,500. As a result, New Yorkers pay a larger share of their income as federal taxes, because the tax rate increases as income does. This carries over to progressive state and local taxes. Even if tax rates were identical, New Yorkers would pay more due to their higher incomes.

It’s not just expensive to live in New York, it’s also an expensive place to die. New Yorkers paid almost 10% of all federal estate taxes, which in 2006 were between 18% and 45% of an estate’s value above the exemption amount of $2 million. That clocked in at $2.6 billion.

In addition to the federal levy on estates, state estate and gift taxes are higher in New York than in almost all other states. In 2006, $857 million in state estate and gift taxes were collected from New York, the highest in the nation.

According to the non-partisan Tax Foundation, which compiles tax data from federal and state sources, New York ranks 48 out of the 50 states in competitiveness and friendliness to business according to its State Business Tax Climate Index for 2008. The index weighs corporate and individual income taxes, sales taxes, unemployment insurance taxes, and property taxes. Only New Jersey, ranked 49, and Rhode Island, at the bottom, fare worse.

New Yorkers need to be active on the federal and state levels, working with their senators and representatives in Washington and Albany to improve their tax situation. Last week the New York Legislature passed a bill raising spending by 4.5%, to $121.7 billion, with planned tax increases of $1.5 billion.

Tax increases are planned for everyone, from financiers to smokers. Financial services companies would pay another $102 million. Cigarette taxes would go to $2.75 from $1.50 per pack, making New York the most expensive place in America to smoke. New Yorkers would pay more for health, since a new $70 million tax on health insurers would be passed to consumers. New Yorkers should call on Governor Paterson to lower spending and taxes.

At the federal level, Senators Clinton and Obama want to raise taxes on top earners by allowing parts of President Bush’s tax cuts to expire on January 1, 2011. This would hurt New Yorkers disproportionately because incomes and costs of living are higher. Senator McCain, though, would keep present levels of taxation, and reduce corporate taxes to 25% from 35%.

When politicians talk about raising taxes to soak the rich, they’re not talking about raising taxes in Mississippi or South Carolina, they’re talking about raising taxes in New York. Raising taxes on New Yorkers makes sense if you live in Mississippi, but not if you live in New York. Yet Mississippi residents support Mr. McCain, who doesn’t want to raise New York’s taxes, and New Yorkers support Mrs. Clinton or Mr. Obama, who do. Go figure.

April 15, 2008, is bad enough. New Yorkers should make sure it doesn’t get worse next year.

Ms. Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. She can be reached at dfr@hudson.org.


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