Friday, December 9, 2011

NY Tax Plan: Occupy Wall Street Victory?

The State of New York is now replacing their “Millionaires' Tax” with “The Fair Tax.” They have issued press releases touting it as tax increases for the rich and tax reductions for the middle class. And several members of the media have taken them at their word. Here are some examples with links to individual articles:

Yahoo News: NY, California hitting up millionaires, again

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.

The New York Times: Who Benefits From the Tax Package

Advocates for extending the state’s so-called millionaires’ tax, which expires Dec. 31, can claim a partial victory, and an impressive one, given Governor Andrew M. Cuomo’s longtime opposition to raising taxes on wealthy New Yorkers.

New York’s governor and legislative leaders struck a deal Tuesday to raise taxes on the wealthy and slightly reduce them for the middle class.

New York's millionaires will pay higher taxes while 4.4 million middle-class and upper-income New Yorkers will get tax cuts, under a reform plan the governor and legislature unveiled on Tuesday.

The state Legislature voted to cut income taxes for the middle class and raise $1.9 billion through higher taxes on the wealthy during a special session Wednesday and early today.

In the state that's home to Wall Street, taxes on the rich are about to go up.

Could This Be a Victory for Occupy Wall Street? Is the message finally sinking in and getting results? Don't bet on it until you look at the package that was passed. As the old expression goes, “the devil is in the details.”

New York's Basic Plan: Cut Taxes for the Rich. ProPublica has published a brief evaluation of the New York tax plan (NY’s Tax Overhaul, Said to Raise Taxes on the Rich, Actually Doesn’t), based upon an article in the New York Times ). ProPublica points out that the rich are not getting an increase over the 2011 rates at all. They are actually getting a decrease. Those with household incomes from $300K-$500K get a reduction of 1% from the rate they paid in 2011, and those with incomes from $500,000-$2 million get a reduction of 2.12%. Nothing was mentioned about people making above $2 million, but I presume they would pay at the same rate..

An Insignificant Cut for the Middle Class. Meanwhile, those with incomes between $40K and $150K get reductions of only four tenths of a percent and those between $150K and $300K get a reduction of only two tenths of a percent. (Nothing is said about households with incomes below $40,000.) So, this is what is called “The Fair Tax Plan” that is to replace “The Millionaire’s Tax?” This is the tax overhaul that has been passed off as “raising taxes on the rich and cutting them for the middle class?”

Rates Tell Only Part of the Story. The ProPublica article correctly points out that the income range of $500K to $2M+ received the biggest decrease in tax rates: -2.12%. This is hardly the middle class, yet its rate reduction over last year is five to ten times greater than the reductions for the two lower income classes. And, when these reduced rate get applied to actual taxes paid, the situation becomes even more unbalanced. Here are some examples:

A household with $40,000 in taxable income would have paid $2,740 in taxes in 2011, and would pay $2,580 in 2012. This is a $160 reduction in taxes over the prior year—or about $13.33 a month or about 44 cents per day — hardly anything that will make a difference in closing the income and wealth gap. 

A household with $110,000 in taxable income would have paid $7,535 in taxes in 2011 and would pay $7,095 in 2012. This is a $440 reduction in taxes over the prior year.  This amounts to about $27 a month or $1.21 per day—again not enough to make much of a difference.

Meanwhile, those with a household income of $300,001 to $500,000 would get reductions ranging from $3,000 to $5,000 ($250 to $417 per month). And those with a household income of $500,000 to $2,000,000 would get reductions ranging from $10,600 to $42,400 ($883 to $3,533 per month). 

To me, this appears to be perpetuating the huge income gap between the “haves” and the “have-nots,” and does nothing to close it

Political Spin? This plan should never be touted as “raising taxes on the rich and cutting them for the middle class.” That is a farcical misrepresentation. If they really WANTED to be honest, they would say that there are across-the-board increases for all income levels compared to last year, which represent some increases compared to 2008. Even then, however, it would be most accurate to frame the tax overhaul in terms of the most recent rates, instead of reaching back three years, just to make their legislation look better than it really it. It appears that much of the media bought into the spin. That shows how much we can rely on them for factual information -- not that this should come as much of a surprise.

Back to the Main Question. With regard to the title question, I have to say that the New York tax plan cannot be considered a victory for Occupy Wall Street.  First of all, New York already had its millionaire's tax plan in place for the 2009 tax year, more than two years before OWS started its movement, and it expires this year.  One could convincingly make the case that perhaps OWS got the idea from the State of New York.  In addition, the new tax plan is worse than the former one, because it created an even wider gap between the 1% and the 99%, which runs counter to the OWS motive for taxing the rich.

And in California... The Golden State has also had a tax plan in the past that imposed higher rates on the wealthy, and they are considering going back to something similar to alleviate their present fiscal woes. Several plans to accomplish this (or to prevent it) will be on the ballot next year.

Conclusion. The idea of taxing the rich may not have originated with OWS, but they must be given some credit for championing the cause and increasing the awareness of millions of Americans regarding this option.

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