New York’s growing reliance on high earners is making the state more volatile and pushing wealth out of the state.
NEW YORK, NY – For more than a decade, New York’s revenue strategy has been to “tax the rich.” Yet concentrating the state’s entire tax base within such a slim portion of the population has left New York financially vulnerable. Recent proposals by lawmakers to raise tax rates further will only heighten the state’s fiscal instability and encourage further outmigration of income and investment.
In a new issue brief by Manhattan Institute adjunct fellow E.J. McMahon, McMahon finds that New York’s income tax system has become increasingly dependent on a small number of million-dollar earners whose income is disproportionately linked to volatile capital gains and investments. With the federal cap on state and local tax (SALT) deductions limiting how much taxpayers can write off, high earners can no longer offset most of their New York taxes on their federal returns. As a result, state tax increases—long a feature of New York’s fiscal approach—are borne more fully by residents, making the financial case for relocating to lower-tax states stronger than even just a few years ago.
McMahon argues that long-term financial stability in New York will require the state to reorient itself away from high-earner dependency and toward a competitive and predictable tax structure. McMahon recommends that New York do the following to attain that goal:
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