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POLICY INSIGHT
BEYOND THE NUMBERS

Higher Taxes on Wealthy Won’t Drive New Yorkers Away

New York’s highest-income residents will see their taxes fall at the end of this year in part because of the governor’s misplaced fear that unless this happens, they’ll flee the state.

New York imposed a temporary surcharge on incomes over $200,000 ($300,000 for couples) several years ago to help close large budget shortfalls resulting from the recession and its aftermath.  But that surcharge is set to expire at the end of December, in the middle of the fiscal year, and lawmakers have thus far opted to let it end, even though the state’s budget woes continue.  This was a big part of the reason why the state made deep cuts to public services in the current budget, including a $1.3 billion cut in aid for local school districts.

With an additional $2 billion budget shortfall projected for next fiscal year, starting April 1, extending the surcharge would help to prevent this year’s deep cuts from getting even deeper.  The Assembly speaker, Sheldon Silver, has proposed extending the surcharge only for incomes over $1 million, and a poll released this week found that 72 percent of New Yorkers back the idea.

Governor Cuomo, however, has refused to consider any extension, arguing that high-income people and businesses would simply move to other states.  “We have competitors.  You can move from New York to Connecticut, you can move to New Jersey,” he said recently.

As we’ve

, this “tax flight” argument is a myth — the evidence doesn’t support Cuomo’s claim that higher taxes will drive the wealthy out of a state.

In fact, perhaps the most carefully designed study on the impact of tax increases on state-to-state migration focuses on neighboring New Jersey’s 2004 tax increase on filers with incomes over $500,000.  It found that at most, 70 filers earning more than $500,000 might have left New Jersey between 2004 and 2007 because of the tax increase, costing the state an estimated $16.4 million in revenue — a drop in the bucket compared to the state’s estimated $3.77 billion revenue gain from the tax increase.

Extending the current tax rate on New York’s highest earners won’t lead to an exodus of the rich.  Instead, it will bring in significant, badly needed revenue, helping to sustain services like education that are essential to maintaining residents’ quality of life.