Sen. Chuck Schumer has a new idea about what to do with the Bush tax cuts: Put it on New York’s tab.
Over the weekend, Schumer called for extending all the cuts except for filers making more than $1 million — even though the high-income filers who would face a tax hike under his plan are disproportionately likely to live and work in New York.
The IRS last released state data on filers earning over $1 million in the year 2000. At that time, New York was home to 7 percent of the US population, but 14 percent of filers over Schumer’s threshold. And the distribution gets even more skewed as you go to higher incomes — meaning that New York residents would actually pay about 17 percent of the tax hike that Schumer proposes.
You might ask, “So what? I don’t make $1 million — that’s other New Yorkers who will foot the bill.” But tax-rate increases on high-income people have disproportionately large economic effects.
According to one study from the Tax Foundation, such increases impose over 50 cents of economic loss for every dollar of revenue collected — making them more than four times as economically damaging as the federal tax code as a whole.
Because New York would pay about 2.5 times the normal share of Schumer’s tax hike, we’d bear more than our share of that economic hit — meaning lost jobs for people at all income levels, not just wealthy bankers.
The “Schumer Tax” would also mean a hit to New York state’s own budget. The Division of the Budget forecasts that taxpayers making over $1 million a year, just 0.4 percent of all Empire State filers, will pay one-third of all state income taxes in 2010. A federal tax hike on those same taxpayers encourages them to work less or otherwise avoid income taxes — which will shrink our state’s tax base and further widen the $9 billion budget gap that is already forecast for 2011.
Schumer’s proposal is bad for the country, but is especially bad for his own constituents. Congress should temporarily extend all the Bush tax cuts for three years, and then, when the economy is on sound footing, comprehensively tackle our country’s dysfunctional tax code and unsustainable entitlement spending — in a way that isn’t biased against New York.
Josh Barro is the Walter B. Wriston Fellow at the Manhattan Institute.