New York’s high taxes may already be pushing wealthy residents out of the city, providing little wiggle room for the state to raise more revenue during an economic slowdown, state Comptroller Thomas DiNapoli said on Wednesday.
“We might be getting near that tipping point where we do make it economically unsustainable for enough of those folks to stay here,” DiNapoli said in an editorial board meeting with Bloomberg News. “There’s no doubt there’s been a net migration of taxpayers at the upper end. It should be a concern for everybody.”
An analysis by New York City’s Independent Budget Office released this week showed that the number of city taxpayers who earned between $1 million and $5 million declined 11% in 2020 from the prior year.
DiNapoli said the notion that “everybody’s moving to Florida” is overblown. “In fact, some people are moving back,” he added. Still, he said the state needed to be careful in the upcoming budget season to rein in spending.
The state is facing a small budget deficit of $148 million next fiscal year. But increased outlays on education, pensions, and health care, along with the exhaustion of federal stimulus cash, threatens to blow multibillion dollar holes in New York’s finances.
Lawmakers in the Democratic-controlled state legislature may call for more services and to pay for those services with higher taxes on wealthier New Yorkers, said DiNapoli, a Democrat. The top 1% of taxpayers are responsible for 40% of the state personal income tax revenue, he said.
Facing pressure from progressives, former Governor Andrew Cuomo and lawmakers in 2021 raised the state tax rates on some of the richest New Yorkers during the pandemic. Residents earning between $5 million and $25 million are now taxed at 10.3%, and those making over $25 million are taxed at 10.9%.
When combined with New York City’s top income-tax rate of 3.88%, residents with income over those thresholds will pay between 13.5% and 14.8%. That compares with the 13.3% rate on those who have income over $1 million in California, currently the highest state tax rate in the nation.
While the state tax rates would expire in 2027, DiNapoli doubts they would be phased out sooner, if ever.
“What are you gonna replace it with? Are you going to cut another program or are you going to come up with a different revenue source?” he said.
The Metropolitan Transportation Authority, the largest US public transit provider and the lifeblood of the New York City region’s economy, faces a $3 billion deficit in 2025 as federal aid dries up and ridership struggles to return to pre-pandemic levels.
Aside from cutting costs and curbing crime on the subway to boost ridership, the agency should readjust schedules to better meet the needs of commuters and increase collaboration with the private sector, DiNapoli said.
The MTA plans to boost tolls and subway fares by 5.5% to help close deficits but it’s also seeking $600 million of state funding for its 2023 operating budget, with that amount increasing to as much as $1.6 billion in 2026.
“The MTA has huge money issues that are going to have to be addressed that it is very possible the state might be more on the hook for,” DiNapoli said.
In addition to serving as the state’s chief auditor and financial overseer, DiNapoli is the sole trustee of the $233 billion New York State Common Retirement Fund, the third largest US public pension.
DiNapoli has pledged to reach net-zero greenhouse gas emissions across the fund’s investments by 2040 and may divest from the riskiest oil and gas companies by 2025.
DiNapoli decried the mounting Republican backlash to environmental, social and governance investing practices.
“When the research shows that having a more diverse workplace and more diverse corporate boards contributes to profitability, that that’s somehow a ‘woke agenda,’” he said. “That’s crazy.”
When asked about big money managers like BlackRock Inc., which manages money for New York’s pension fund, DiNapoli said he’s spoken to Chief Executive Larry Fink and “expressed sympathy for what he’s going through.”
Fink is “caught in the middle, right? He’s getting it from the left, he’s getting it from the right,” he said. “Everything has become polarized, unfortunately, including the investment discussion.”
Meanwhile, Florida’s chief financial officer Jimmy Patronis said in an interview Wednesday that Fink only has himself to blame for the ESG backlash because he was so vocal about sustainable investing. BlackRock declined to comment.
“When Larry Fink goes and throws out this manifesto out there, he’s getting my attention,” Patronis said. “When you’re so outspoken on that type of a social agenda you’re gonna draw some fire. He really did it to himself,” Patronis said.
–With assistance from Saijel Kishan and Skylar Woodhouse.
This article was provided by Bloomberg News.