New York State is giving away the goose that laid the golden egg—its highest-earning taxpayers. Last week, an analysis by Bloomberg’s Justin Fox showed that the flight of affluent taxpayers and the end of the market bull run has caused state personal income tax receipts to fall below their pre-pandemic 2019 level. This should ring alarm bells in Albany, as State Operating Fund spending, comprising most state-funded operating activities, is about $25 billion higher in the recently enacted budget than it was in FY 2019–20. As monthly tax collections fall short and fiscal reality bites into these spending commitments, public leaders will be forced to confront (and correct) a hard reality: New York has become a less attractive place to live.
New York’s tax base has eroded for most of the last decade. As the Empire Center’s E. J. McMahon has shown through his close tracking of New York migration and tax statistics, New York’s share of national tax returns with incomes over $1 million declined throughout the 2010s. In 2020, 1,973 millionaire-earner filers exited the state, followed by 1,453 in 2021—far above the 696 who left in 2019. Following a 2021 tax hike on top earners, 8 percent of taxpayers earning over $25 million fled. A mid-May New York Times analysis also revealed that New York City has led American cities in hemorrhaging college-educated residents for over a decade, losing over 100,000 such residents in 2021 alone—about as many as the 11 other most expensive large metros combined.
Once, Gotham’s status as the world’s leading city insulated it from competition. Now, as remote work allows for city salaries without the hefty rent payment, and as other cities offer a richer and wider mix of amenities, New York is no longer the city of choice for high-earning professionals. And it’s those in the top income decile whom the state depends on for around 73 percent of income taxes. New York’s top combined city and state tax burden of 15.9 percent is the highest in the United States.
At the same time, New York state and local governments are failing to provide quality public services, zone for growth, and manage crime and disorder. Despite spending a record $26,571 per public school pupil in 2020–21—the most of any state—New York sees its kids score lower than the national average in both reading and math. Teachers’ unions across the state battled to keep schools closed during the pandemic; New York’s learning losses are now among the worst in the nation. A disastrous decline in the number of new city housing units permitted since 2009, lagging far behind job growth, has driven rents to insufferable heights. Combine all of that with a 32 percent citywide increase in serious index crimes between 2019 and last year, and New Yorkers are paying exorbitantly for a greater chance of being robbed or harmed.
Did state lawmakers respond to these dire quality-of-life issues by passing overdue reforms to promote new housing supply, foster economic competitiveness, and shore up long-term finances? Hardly. Despite Governor Kathy Hochul’s proposals to boost housing supply and establish new city charter schools, the legislature’s refusal to cooperate signals that its members are unwilling to make the hard decisions. Representatives won’t upset groups like incumbent homeowners and teachers’ unions to make the state more inviting to newcomers and accommodating to those trying to raise a family. With mere days left in the legislative session, only dim prospects for reform remain before next year.
The legislature and the governor should have enacted comprehensive short- and long-term plans to address these challenges. At a minimum, they could have held spending constant to maintain already record-high service usage in the wake of evaporating pandemic relief funds and deteriorating short-run outmigration figures. That would have bought some time to implement long-run reforms, such as rezoning downstate areas to build more housing.
Instead, Albany offered more of what hasn’t been working. Imprudent new spending included a $2.6 billion spike in public school spending, $400 million to offset high electric bills and still more for quixotic renewable-energy plans, and an additional $280 million for the exorbitant and unneeded tax credit given to the film industry. Rather than fix the crushing compliance burdens of discovery reform, the budget merely threw another $170 million into a fundamentally flawed system. These measures won’t bring back high-earning taxpayers. Worse yet, they set unrealistic assumptions for the state’s ability to pay for these programs.
None of this bodes well for Hochul, who struggled to achieve policy victories even armed with enough cash this budget cycle to induce recalcitrant lawmakers over to her side. Next year, when she needs to close a budget gap, can New Yorkers really expect better?
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