Janet Novack, Forbes Staff
|12/07/2011 @ 8:20AM |13,245 views
New York Decides It Takes $2 Million To Be Rich — For Tax Rates That Is
What’s rich? And at what level of rich should the top tax rate kick in? Today, the top federal tax rate of 35% begins at taxable income of just $379,150 for couples filing jointly. An ongoing attempt by Senate Democrats to impose a surtax on income over $1 million stands little chance of overcoming Republican opposition and Warren Buffett’s proposal for an even higher rate on income above $10 million is, in today’s Congress, just a fantasy.
The states, by contrast, have been pushing upward the definition of rich for tax purposes. Indeed, a deal announced Tuesday by Democratic New York State Gov. Andrew Cuomo, Republican Senate Majority Leader Dean Skelos and Democratic Assembly Speaker Sheldon Silver would lift the income level at which the state’s highest tax kicks in from the current $500,000 per couple to $2 million per couple, while providing a significant rate cut to those below the $2 million level.
Cuomo had promised to let a temporary 2009 rate hike from 6.85% to 8.97% on income over $500,000 expire, as scheduled, at the end of 2011. The new deal does allow the 2012 rate to drop all the way back to 6.85% on income below $2 million. But for income above $2 million, the rate will be shaved by just fractions, to 8.82%. The new top rate, assuming the deal goes through, would be in effect for 2012, 2013 and 2014.
The New York pact was announced just a day after California Democratic Gov. Jerry Brown filed a ballot initiative (text here and a letter from Brown here) that would create new, higher income tax brackets for couples earning more than $500,000 to fund education. Currently, California’s top rate of 9.3% kicks in at taxable income of just $96,058 per couple and half that for singles.
Under Brown’s initiative, the income tax rate would rise by 1 percentage point on income between $500,000 and $600,000 per couple, by 1.5 percentage points on income between $600,000 and $1 million and by 2 percentage points on income above $1 million. (For singles, Brown’s new rates would kick in at $250,000, $300,000 and $500,000.) Since there’s also a 1% surcharge on income over $1 million—a levy that voters approved in 2004 to fund mental health care– the new top state rate on millionaires would be 12.3%. The higher rates, if approved by voters, would be in effect for 2012 through 2016, as would a temporary one half a cent increase in the sales tax rate.
The prospects for Brown’s initiative are unclear. His proposal is just one of several tax initiatives being pushed for next November’s ballot. The California Federation of Teachers filed an initiative the same day as Brown; the teachers’ proposal would raise tax rates on income over $1 million by 3 percentage points and income over $2 million by 5 percentage points. Just yesterday, California anti-tax groups filed their own initiative to curb spending. As the Mercury News observed, all those initiatives could makes for a “wild and confusing” election, but “Democrats in Sacramento believe they have the public on their side after having cut $56 billion in the past several years, and polls are showing voters may have had enough retrenchment.”
One other thing national polls do show: Voters generally approve of tax hikes on the rich and are even more approving when the definition of rich is $1 million or more, rather than just $250,000. Maybe in pricey New York, $2 million is the new $1 million.