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Civic Report
No. 43 August 2004


The $36 Billion Bonus
New York’s Gains from Federal Tax Cuts

Endnotes

  1. The 2001 law also phased in a repeal of the federal estate tax, which is not a subject of this report.
  2. Long-term capital gains are gains on assets held for at least 12 months; shorter-term gains are taxed at regular income rates.
  3. As a stimulus measure, the first installment of the EGTRRA cut was distributed to taxpayers in the form of “advance payment” checks beginning in late July 2001. These payments—up to $300 for single taxpayers, $500 for heads of household, and $600 for married couples—reflected the value of the new 10 percent bracket on the first $12,000 of income. New York’s share of the advance payments totaled just over $2.5 billion, including about $1 billion for New York City residents. In fact, many of these checks ended up being cashed during the weeks leading up to and immediately following the World Trade Center attack.
  4. Governor George Pataki’s 2004–05 Executive Budget projected state personal income tax receipts of $26.8 billion.
  5. The city expects $4.6 billion in federal categorical aid and $5.4 billion in receipts from its own personal income tax in fiscal 2004–05.
  6. Income measured as estimated adjusted gross income.
  7. These family median income figures are from annual estimates developed by the U.S. Department of Housing and Urban Development (HUD) to determine eligibility for subsidized housing. The nationwide income estimates are available at http://www.huduser.org/datasets/il/il04/.
  8. See, for example, Hollow at the Middle, a 1996 report issued by the New York City Council Finance Committee, which suggests that “middle class” in the city ranges up to 200 percent of the size-adjusted median family income. For a family of four in 2004, that would be $123,600.
  9. For more analysis of the Republican and Democratic tax proposals during the last senatorial and presidential campaigns, see Campaign 2000 Tax Proposals: What They Mean for New Yorkers, Manhattan Institute Center for Civic Innovation, Civic Report No. 15, October 2000.
  10. Securities Industry Association, “The Street, the City, and the State: The Securities Industry’s Importance to New York City and State,” Securities Industry Trends 40, no. 2 (March 22, 2004), from cover page highlights.
  11. Ibid., p. 12.
  12. Required quarterly estimated income tax payments were also temporarily increased by the State and City on an accelerated basis.
  13. In the aggregate, our model indicates that households throughout New York State with incomes above $125,000 saved about $3.8 billion more in federal taxes while paying about $900 million more in new state income taxes in 2003. In New York City alone, households in the same bracket saved nearly $2 billion in federal income taxes while paying about $410 million more in City income taxes and about $420 million more in State income taxes.
  14. The State and City income tax rates are supposed to “sunset” at the end of 2005.
  15. For more on this phenomenon, see Robert Carroll, “Do Taxpayers Really Respond to Changes in Tax Rates?,” U.S. Treasury Office of Tax Analysis, OTA Working Paper 79, November 1998.
  16. The state’s fiscal year ended March 31, and the city’s fiscal year ended June 30.
  17. Kerry also favors an expansion of existing tax credits for college tuition, which phases out at incomes between $83,000 and $103,000 and effectively excludes many middle-class New York families from sharing in its benefits.
  18. A summary of the Democratic candidate’s tax proposals can be found at http://www.johnkerry.com/issues/economy/fiscal_responsibility.html.
  19. Carroll, op cit.

 


Center for Civic Innovation.

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CR 43 PDF (142 kb)

WHAT THE PRESS SAID:

The Power of Good Ideas
New York Post, 8-26-04
The City That Conservatives Built
Gotham Gazette, 8-25-04

SUMMARY:
This study provides an Empire State perspective on federal income tax cuts enacted since 2001. Through 2004, New York State's share of the income tax cuts will total nearly $36 billion, including $15 billion in savings for New York City residents. In 2004 alone, tax cuts will amount to a 2.7% average boost in after-tax income for New York residents.  In addition, reductions in dividends and capital gains tax rates contributed to a strong rebound in stock prices in 2003, providing vital aid to the City's financial services sector. As a result, New York would be particularly hard-hit if Congress enacts a proposal by presidential candidate John Kerry to roll back marginal rate cuts and investment incentives for taxpayers earning more than $200,000.

TABLE OF CONTENTS:

Executive Summary

About the Author

INTRODUCTION

OVERVIEW OF ENACTED TAX CUTS

The Second Step

What New Yorkers Saved

Figure 1: New Yorkers’ Combined Savings from 2001 Federal Income Tax Cut

Figure 2: New Yorkers’ Combined Savings from 2001 and 2003 Federal Income Tax Cuts

Sample Families

Table 1: Impact of 2001 and 2003 Tax Cuts on Hypothetical Taxpayers

Indirect Effects

THE CHOICES AHEAD

Figure 3: New Yorkers’ Projected Federal Income Tax Savings With All Expiring JGTRRA Provisions Extended Through 2010

Figure 4: New Yorkers’ Projected Federal Income Tax Increases Under JGTRRA (as of 8/1/2004)

Figure 5: New Yorkers’ Projected Federal Income Tax Increases Under Kerry Proposals

CONCLUSION

APPENDICES

ENDNOTES

 


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