New York’s rate of growth in withholding tax receipts during the final quarter of 2012 was among the lowest for any state with an income tax, according to the latest quarterly State Revenue Report from the Rockefeller Institute of Government.  ***See Update at bottom of post.***

Withholding taxes are driven mainly by changes in employment and wages and thus serve as an indicator of economic growth. The Rockefeller Institute’s report says New York’s withholding receipts grew by 3.3 percent in the fourth quarter of 2013. That was less than half the national average of 7.8 percent, and also below the five-state Mid-Atlantic regional average of 4 percent. Only six of the 41 states with income taxes had lower withholding growth during the same period. (According to the same Rockefeller Institute report, New York’s employment growth in 2012 was also below average.)

One important caveat: on a year-over-year basis, New York’s personal income tax receipts in 2012 were reduced in part due to the Dec. 31, 2011, sunset of a portion of the “millionaires tax” that applied to incomes as low as $200,000. The extended tax applies only to incomes above $1 million for individuals and $2 million for couples. ***See added note at bottom of post.***

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President Obama’s proposed cap on itemized federal income tax deductions for state and local taxes would cost New York residents $3.8 billion a year, according to a report released by Governor Cuomo’s office today. However, you’ll have to dig a little to find that number: Obama isn’t mentioned until page 11 of the 26-page document.

The opening section of the report (which is, by the way, useful and well-researched in most respects) focuses on how bad it would be for New Yorkers if the federal government were to completely eliminate the deduction for state and local taxes. However, no one in a position of authority in Washington is actually proposing such a thing. The much more more serious risk to New York is that the White House and Congress will agree to some form of limit on itemized deductions for high-income taxpayers, as Obama proposed in his budget last week (reviving a proposal he first trotted out three years ago).

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President Barack Obama’s proposed federal budget revives his proposal to cap the value of itemized income tax deductions for the highest-earning 3 percent of taxpayers, a category starting at $200,000 of taxable income for single filers and $250,000 for married filers.

Under current law, if you’re in the 39.6 percent tax bracket, you get a 39.6 percent discount on the cost of items for which you claim deductions, assuming you’re not subject to the Alternative Minimum Tax (and if you make enough to be in that bracket, you’re probably beyond AMT range). Obama would reduce it to 28 percent, the highest tax rate in lower brackets.

By far the largest deduction claimed by high-income taxpayers, especially those earning $1 million and more, is for state and local taxes.

So guess which state’s tax base (with the possible exception of California’s) would be hit hardest by this change?

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Governor Cuomo and the Legislature are about to add another gnarly twist to the state’s heavily cluttered personal income tax code with their agreement to create a new “Family Tax Credit.” The credit, as widely reported, is designed to put a $350 check in about a million mailboxes starting “on or before October 15″ in 2014 — within three weeks of the next statewide election. It would expire after 2016.

The credit is targeted to residents of New York State who have at least one child aged 17 or younger under 17 and adjusted gross income of $40,000 to $300,000.  However, in order to determine who gets a check in the mail, the state Department of Taxation and Finance will need to rely on the latest information it has available — which will come from 2012 tax returns (those IT-201 forms New Yorkers have to file before April 15).

As a result, although this is supposed to be a break against 2014 taxes, the language in the new revenue bill says eligibility will be decided on the basis of family, income and tax status as of “the taxable year two years prior to the taxable year in which the credit is allowed,” which means 2012.  For each of two succeeding years, eligibility also will be based on the tax return filed two years earlier.

Inevitably, thousands of those $350 checks will be delivered in the fall of 2014 to people who were eligible for the credit in 2012 but will no longer be eligible in 2014.

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"We are once again cutting taxes."

Details aren’t yet settled, but news reports this morning quote Senate Republican Leader Dean Skelos as saying the 2013-14 state budget will include $700 million in tax cuts. Other reports and rumors suggest a somewhat smaller amount.

We’ll see soon enough. Meanwhile, as Capitol reporters and lobbyists disappear down the rabbit hole of Albany budget spin, keep in mind what then-Attorney General Andrew Cuomo said in 2010 when asked if he would agree to an extension of a temporary tax increase:

It was supposed to sunset. If it doesn’t sunset, it’s a tax [hike].

Speaking in his characteristic staccato style, Cuomo was not taking some unusual or idiosyncratic position. He was simply employing a common yardstick for evaluating the fiscal impact of policy changes: the current-law baseline.

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Senate Republicans today unveiled some new proposed personal income tax (PIT) adjustments that would generate savings for middle-class families.* For a couple with income of $70,000 and two children under 17, the potential annual tax cut from the proposed Family Tax Relief Act would appear to come to roughly $700. The estimated revenue hit of $500 million from these changes would be relatively modest, especially if spread over a few years.

So far, so good. The dependent exemption, after all, hasn’t been touched in 25 years, and those credits were never indexed to inflation.

Unfortunately, the Senate GOP conference also wants to spend a whopping $1.3 billion to revive New York’s School Tax Relief (STAR) property tax rebates — a classic political check-in-the-mailbox waste of money that disappeared, widely unmourned, just three years after its 2006 election-year enactment. STAR rebates would be calculated as a percentage of savings already provided through the main STAR homestead exemption program, and would average $445 per homeowner, and $460 for seniors. The Senate passed a one-house STAR rebate bill last year, too.  (Think of it as a $1.3 billion excuse for avoiding Triborough repeal and other school mandate relief.)

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The biggest of the almost-new taxes in Governor Cuomo’s “no new taxes” budget is being targeted for elimination by state Senate Republicans. They were joined today by business and industry representatives in calling on Cuomo to remove the extension of the Section 18-A “assessment” from his budget proposal.

Governor Cuomo’s proposed state budget for fiscal 2014 envisions a relatively strong 6.6 percent ($2.6 billion) increase in net personal income tax (PIT) receipts for the year starting April 1, even though the tax so far has under-performed the original budget projections for fiscal 2013.  The highest-earning one percent of New York taxpayers is expected to generate 41 percent of net receipts, according to the Economic and Revenue Outlook volume of the budget (see p. 208).

The chart below shows the estimated and projected five-year trend in the PIT, which is by far the state’s largest tax source. For more fiscal plan details both the receipts and disbursements side, see the Empire Center’s new Explore the State Budget online app.

Governor Cuomo* is running TV commercials declaring that his proposed 2013-14 budget features no new taxes — a claim also widely reflected in most news media coverage of the budget.

It’s not quite true, however. Compared to what is now written into permanent state law, Cuomo’s budget would, in fact, raise $325 million more next year, and $2.2 billion over the next four years, by extending a pair of almost new taxes — temporary measures, first enacted in 2009, that were supposed to expire by the end of the next fiscal year.

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For taxpayers in New York State’s top personal income tax bracket, the new federal tax law will drive the combined federal and state marginal tax rate to within a percentage point of 50 percent, its highest level in 27 years. For New York City’s highest earning residents, the combined federal-state-local income tax bite will now consume more than half of every added dollar of income for couples earning at least $1,000,000.

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