NEW YORKS economy and tax base, already sagging in a deep recession, would take another huge hit under Rep. Charles Rangels plan to impose a surtax on high-income households to finance a new government-run health plan.
Rangel and his House Democratic colleagues want to begin voting as soon as this week on a plan to raise the federal income-tax rate by 5.4 percentage points on individuals with incomes above $800,000 and couples earning more than $1 million, and by 1 to 1.5 percentage points on individuals with incomes starting at $280,000, all effective in 2011.
And those lower rates will double by 2013 if the plan doesnt yield the projected health-care savings.
Taken together, the House health tax, President Obamas own tax plan and Albanys recent, supposed “temporary” tax hike would bring New Yorks effective marginal tax rate on top earners to nearly 57 percent, compared to just over 45 percent only a year ago, according to the Washington-based Tax Foundation.
For New York City residents, it would be closer to 59 percent, the highest in the nation.
The impact wouldnt be limited to Park Avenue swells. Much of the taxable income in the highest brackets is reported by owners of and investors in small businesses. Higher income taxes will drain the working capital of small firms, sapping the resources theyll have to add jobs and recover from the recession.
And small businesses who fail to offer health insurance to their employees will be slapped with another tax -- an 8 percent payroll tax -- under the House plan.
If enacted, the House bill would be an economic double whammy for Rangels home state, with its high average incomes and disproportionately large share of the nations wealthiest households -- because Obama already intends to raise taxes on the very same people at the same time, undoing tax cuts enacted starting in 2001 under President George W. Bush.
The Bush cuts, especially investment-tax breaks and accelerated rate cuts passed in 2003, were a major tonic for New Yorks economy in the days after 9/11 and the stock-market slump earlier in this decade. By contrast, the health-care tax hike, especially in combination with Obamas plan, is likely to have the opposite effect.
This would all come in the wake of a $4 billion state income-tax hike passed as part of the budget deal between Gov. Paterson and the Legislature. Higher state taxes are kicking in at incomes as low as $200,000 for individuals and $300,000 for married couples. (And their net cost will increase in a few years if Obama also implements his plan to further limit itemized deductions in the top brackets.)
While Rangel says his surtax on top brackets would represent “the least amount of pain on the least amount of people,” the ripple effect of a shrinkage in the state and city tax base would be felt by many more New Yorkers.
Because the Empire State is home to such a large concentration of successful and wealthy investors and business owners, its entire economy benefits when federal tax policy is focused on economic growth and wealth creation. By the same token, a policy geared to income redistribution will drain the resources needed to rebuild our own economy.
By the middle of the next decade, many more New Yorkers may be receiving free subsidized health coverage -- while wondering what happened to their jobs.
Original Source: http://www.nypost.com/seven/07162009/news/columnists/sledgehammer_hit_to_crumbling_empire_sta_179547.htm