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California, New York Target High-Wage Earners To Address Fiscal Crises

Millionaires

By MICHAEL GORMLEY   12/10/11 07:11 AM ET   AP

ALBANY, N.Y. -- Hollywood moguls and Manhattan stock brokers are facing a slap by the Occupy Wall Street movement as California and New York again target high-wage earners to address a continued fiscal crisis in the states.

On Wednesday, with the urging of Gov. Andrew Cuomo, New York raised its top tax rate on single filers making $1 million and joint filers making $2 million, a rate just slightly under the 2008 income tax surcharge that expires Dec. 31.

Earlier this month in California, Gov. Jerry Brown said he, too, wants to avoid further cuts to education and social services by proposing a ballot initiative asking voters to increase taxes. That could hit Californians making over $250,000.

"Occupy turned the political conversation on its head," said Richard Brodsky, a senior fellow at the Wagner School at New York University. "Time was austerity and tax cuts were the only acceptable place to be. Now, income inequality and the 99 percent dominate practical politics. OWS paved the way; Cuomo and Brown seized the moment."

There's no evidence of a national groundswell after more than a dozen states tapped their well-heeled residents for temporary income tax hikes from 2006-2009. But while most of those states let their temporary tax increases lapse as scheduled, New York and California this month went back to the well.

Despite the political rhetoric, there's less need in either state to act to make their tax brackets more fair. California and New York already have more progressive systems than most states, according to the nonpartisan Tax Foundation based in Washington, D.C.

"California and New York are historically not going to be the most fiscally conservative states," said Mark Robyn, an economist with the Tax Foundation. "To say they reflect the overall country's attitude to taxing the wealthy at a disproportionate rate, that might be tenuous."

California and New York are also among only four states, with Washington and Missouri, to show deficits in a midyear survey by the National Conference of Legislatures, said the group's Mandy Rafool.

California faces a $3.7 billion shortfall for the current fiscal year and projected $12.8 billion deficit in 2013. New York learned of an unexpected $350 million deficit this year, and a higher projected deficit for the 2012-13 fiscal year of $3.5 billion.

But Rafool said there's no inkling more states will follow California and New York, although tax revenues are growing only slowly in most states.

"It's an election year and we're seeing that revenues are recovering, spending is stable," Rafool said. "This is better than in the last four years. It's still not good, but it's better."

She said she'd be surprised if other states follow New York and California.

Instead, the common thread is that each state's finances are worse than most other states, and their Democratic leadership has felt pressure from the Occupy Wall Street movement and other progressives.

In New York, an Occupy Albany movement has camped outside the Capitol all fall. At first, Cuomo, a Democrat who ran as a fiscal conservative last year, tried to evict them, only to be stymied by local Democratic district attorney and mayor. Occupy Albany called Cuomo "Gov. 1 Percent" for opposing a millionaire tax and saying it would drive employers out of state.

Meanwhile the Democratic Party that Cuomo heads and his progressive allies continued to push for a new millionaire tax to avoid more cuts to education and health care.

In November, Cuomo made a hard left and pushed for the millionaire tax increase passed Wednesday that includes a modest, but rare middle class tax break. The package also provided more spending for jobs programs.

"My job as governor is to make the best decision at the time to meet the needs of the state at the time," Cuomo said Wednesday.

"You're seeing it play out on college campuses," said the California state Senate's Democratic leader, Darrell Steinberg of Sacramento. "You're seeing it play out in different communities throughout California. There's a real sense that the pendulum in terms of the way we've had to deal with these budget deficits, has gone too far."

But while there may be an immediate payoff in cash and politics, the long-term wisdom of soaking the rich has long been questioned.

"As many states face increasingly large budget shortfalls that are often related to economic cycles, leaning on high-income earners and small businesses to pick up a disproportionate amount of the bill raises serious equity concerns and is bad for government revenue stability," said Scott Drenkard, an analyst with the Tax Foundation.

He notes many businesses, 94 percent of which file as individuals, and high-income earners have the most volatile income. If the economy continues to slip, they will have less revenue and that could further hurt businesses or prompt them to flee.

New York and California already share another distinction: They have experienced some of the greatest flight of taxpayers from 1999 to 2009 and have tax structures considered among the least attractive to businesses, according to the Tax Foundation.

"It reminds me of the Bob Dylan song, you don't need a weatherman to know which way the wind is blowing," said Doug Muzzio, a Baruch College politics professor in New York City. He said continuing fiscal crisis and the Occupy Wall Street could force the same consideration elsewhere.

"Without any real evidence except for what I've seen here, I would think that the other states almost invariably will have to examine it," he said.

___

Associated Press writer Judy Lin contributed to this report from Sacramento, and AP writer Michael Virtanen contributed from Albany.

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Filed by Maxwell Strachan  |