In an affront to Governor Paterson, Assembly Democrats are preparing to vote to raise taxes permanently on New Yorkers earning more than $1 million a year.
The so-called millionaire's tax bill would raise the personal income tax rate of people earning more than $1 million, and boost the tax rate even higher for people earning more than $5 million. The increases up for consideration are higher than had been proposed earlier this year and, unlike the previous plan, would not be restricted to a five-year period.
Critics of the plan, which is expected to win approval in the Assembly today when lawmakers return to Albany for a special legislative session called by the governor to cut hundreds of millions of dollars from the state budget, say the tax hikes would prompt wealthy New Yorkers to leave for neighboring states with lower tax rates, such as New Jersey and Connecticut. They also say it illustrates the Assembly Democrats' refusal to identify ways to significantly trim the budget.
Mr. Paterson has expressed opposition to the tax hike proposal, arguing that the state should be looking to tighten its belt in this grim economy. Mayor Bloomberg has spoken out against the plan.
Although the bill would need to win approval in the Republican Senate before it could be enacted, supporters say they are certain that even if it doesn't go through this year, the legislation would lay the groundwork for a tax increase down the road.
If Republicans lose their majority in the Senate this fall, the millionaire's tax could have a greater chance of winning approval.
"Regardless of who is in power next year, the Legislature is going to have to look at increasing taxes," said Daniel Cantor, the executive director of the Working Families Party, a labor-backed group that supports the millionaire's tax. "If the Democrats are in power, they will try to tax wealthier people. If the Senate Democrats take over, we hope they will be true to those time-honored views."
The Assembly is set to vote on the bill today at a special session Mr. Paterson called in late July, during an unusual televised address in which he tried to impress upon New Yorkers the dire condition of the state's finances and call for action from lawmakers.
He has asked the Legislature to come up with $600 million in cuts today to help close a budget gap of $6.4 billion next year, and has warned that the cuts could be "painful." Exactly where the cuts would come from was still being negotiated yesterday, an Assembly Democrat said. Mr. Paterson has called for cutbacks to health care and higher education.
Assembly Democrats also are expected to protest a property tax cap supported by the governor and the state Senate by voting today on an alternative plan that would restrict property taxes through a formula that ties tax payments to income levels, instead of approving an across-the-board property tax cap.
Known as a circuit-breaker, the property tax plan would set limits on taxes, so that a family with a gross income of $90,000 or less wouldn't have to spend more than 5% of its gross income on property taxes. The tax limit would increase to 6% for households earning between $90,000 and $125,000, and would jump to 7% for households earning $125,000 to $250,000.
"This is a responsible approach to not only dealing with the fact that we have a looming budget crisis, but giving the greatest amount of relief to those who most need it: low- and middle-income New Yorkers," Assemblyman Micah Kellner, a Democrat of Manhattan, said.
The alternative proposal would prevent the tax cap passed by the Republican-led Senate earlier this month — which would prohibit taxes from increasing by more than 4% a year — from becoming law. The Senate's measure drew an immediate rebuke from labor-backed organizations, which launched a $1.5 million advertising campaign attacking the plan and the governor.
The Assembly's millionaire's tax bill would raise the income tax rate to 7.85% from 6.85% for New Yorkers who earn more than $1 million a year, and would raise to 8.6% from 6.85% the tax rate for people earning more than $5 million. If enacted, it would raise $2.6 billion for the state, according to the Working Families Party.
An earlier proposal discussed in the spring would have authorized the tax increase for five years only and raised the personal income tax rate to 7.7% from 6.85%.
The director of the Empire Center for New York State Policy, E.J. McMahon, said he's not surprised that Assembly Democrats, led by Speaker Sheldon Silver, are planning to approve the millionaire's tax.
"It has been clear from the beginning and from everything the speaker has said over the past year that they are much more interested in raising taxes instead of reducing the budget," he said.
"They are going to keep consistently pressing it until they get it."