This paper provides an Empire State perspective on federal income tax cuts enacted since 2001. It estimates the resulting decrease in New Yorkers' tax payments and describes the implications for New York of proposed future changes in federal tax policy.
Principal findings include:
- 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, New York State residents will save nearly $14 billion in federal income taxes, including nearly $6 billion in savings for City residents. This amounts to a 2.7 percent average boost in after-tax income.
- If all current tax cut provisions are made permanent, the additional savings for New Yorkers from 2005 through 2010 will total nearly $108 billion. This includes about $46 billion in projected savings for City residents.
In addition to direct savings for individuals, the tax cuts brought significant indirect benefits to New York's economy. Reductions in dividends and capital gains tax rates contributed to a strong rebound in stock prices in 2003, providing a shot in the arm to the City's vitally important financial sector. The acceleration of marginal rate cuts also offset large temporary hikes in New York State and City income tax rates, which took effect at the same time as the 2003 federal changes.
On the other hand, 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. Although New York State is home to only 6.6 percent of all income tax filers, New Yorkers would shoulder at least 11 percent of the tax increases resulting from such a proposal. Moreover, New York's vital securities industry would be adversely affected by any weakening in equity prices that results from a reversal of the 2003 cut.