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Zack Hutchins
Director of Communications

February 18, 2004

Think-tank: $7 billion for CFE means the largest tax hike in state history

Providing the additional $7 billion in school spending that advocates argue is necessary to provide New York's students with a "sound basic education," would require lawmakers to enact the largest tax increase in the history of the state and lose tens of thousands of jobs, according a new report by the Manhattan Institute.

The Institute's report criticized the $7 billion dollar estimate given by the the Campaign for Fiscal Equity (CFE) on February 4.

“There’s an Alice-in-Wonderland quality to the estimate by the Campaign for Fiscal Equity, given the continuing fiscal stresses faced by every level of government in New York State,” the report said. The report, which outlines different ways lawmakers could raise the $7 billion, was written by E.J. McMahon Jr., a senior fellow with the Institute.

Lawmakers could raise the $7 billion by enacting an across-the-board increase in the state personal income tax, but that would require a top rate of more than 9.7 percent, the state’s highest in 20 years, the report said.

Alternatively, lawmakers could raise taxes for all income brackets by an average of ten percent.
“For a family of four with an annual income of $65,000, that would translate into an additional $550 a year,” the report said.

The state could also raise taxes only for those with incomes above $200,000 a year. That “soak-the-rich” approach would boost the top rate to 11.74 percent, the report said.

“Within New York City, such high income earners would be subject to a combined state-local flat rate tax of more than 16 percent—roughly two to three times the rate in most other states that have income taxes,” the report said.

The report also noted that any tax increase aimed at raising $7 billion would result in the loss of tens of thousands of jobs.

The report highlighted other options including:

The report also said that if lawmakers equally divided the $7 billion between state and local taxpayers, all state tax rates would be raised by 8 percent, property taxes outside of New York City would increase by 11 percent, and there would be a 10 percent average increase in all current New York City taxes.

If the Legislature does choose to raise $7 billion at the state level, it could eliminate the STAR program, which will cost the state $3 billion in 2004-05, the report said.

“This would boost school property taxes an average of nearly $700 for homeowners outside New York City, and by twice as much for senior citizens,” the report said. “In the city, STAR’s elimination would result in smaller property tax hikes combined with a 5 percent across-the-board increase in city income tax bills.”

Raising $7 billion in new revenues would require the largest tax increase ever enacted by New York State, the report said.

“There’s no reason to believe schools would actually improve as a result of the added spending, but there’s plenty of reason to believe New York’s already heavily taxed economy would be weakened in the process,” the report concluded.