The New York legislature did on Thursday what Congress has been unwilling to do at the national level: it closed almost half of a $3.5 billion budget gap by raising taxes on millionaires and cutting taxes on the middle class.
Under the plan, 4.4 million middle-class New Yorkers -- defined as households making $40,000 to $300,000 annually and single filers making $20,000 to $150,000 annually -- will get a tax break of $200 to $400 a year for the next three years. Meanwhile, households making more than $2 million a year and single filers making more than $1 million a year will see their income tax rate increase from 6.85 percent to 8.82 percent.
Wealthy families who earn more than $300,000 but less than $2 million will see no change in their 6.85 percent tax rate.
Tax Increase on Millionaires More Than Covers Middle Income Tax Cut
The tax increase for millionaires will more than cover the cost of the middle-class tax cut, as well as tax breaks for small businesses and manufacturers and $50 million in disaster aid to upstate areas that were devastated by flooding over the summer. It should also eliminate the need for further education and health care cuts in 2012, and it shaves $1.5 billion off of the state's $3.5 billion budget deficit.
The bill earned rare bipartisan support from Gov. Andrew Cuomo, a Democrat, and Senate Majority Leader Dean Skelos, a Republican. Neither called it an ideal solution, but both said it was better than the alternatives.
Hike Needed to Avoid Decimating Essential Services
While I am against higher taxes and I believe our long-term economic future for this state is enhanced by in fact lowering taxes to make us more competitive ... if I were to close the entire gap by budget cuts, it would decimate essential services, doing real harm to the state's economy and strangling local governments all across this state, Cuomo said after the state Senate voted unanimously Wednesday night in favor of the bill. The state Assembly then approved it 130-8 on Thursday.
Skelos lauded the middle-class tax cuts while largely ignoring the tax hike on millionaires.
I think we are doing absolutely fabulous in terms of the middle-income, hard-working taxpayers of the state. It's the first time we've lowered those rates in 50 years, he said. We're cutting taxes, in my opinion.
Though the tax bill had broad support, some Republicans criticized their leaders for paying too little attention to the tax-hike portion of the plan.
For the next three years, New York will continue to have one of the nation's six highest tax rates, E.J. McMahon, a scholar at the conservative Manhattan Institute, told The Huffington Post.