December 6, 2012
DiNapoli: New Yorkers Facing $43 Billion in Added Taxes if Congress Fails to Act on Fiscal Cliff
“Voters sent a clear signal in November that a deal must be done and that there must be a balanced approach to increased revenues and spending cuts. New York’s congressional delegation and President Obama are working hard to achieve this goal and they have my continued support as they fight for New Yorkers. Now is the time for Washington to show leadership for the good of the country with a reasoned compromise that puts us on the right path.”
DiNapoli’s report on the impact of the fiscal cliff on New York State showed that federal taxes would rise sharply on January 1, 2013 for virtually all working New Yorkers. His analysis found the pending 47 percent increase in the payroll tax rate would cost New Yorkers $7.7 billion in 2013 and immediately reduce paychecks. If action is not taken, an additional 3.4 million New Yorkers would be required to pay the Alternative Minimum Tax (AMT), up from around 500,000 currently.
Changes in the AMT would require impacted New Yorkers to make large, unplanned additional tax payments in the tax returns due by April 15, 2013 – an average of $5,180 more than they would pay under this year’s tax provisions. Without action, more than half of those who pay federal income tax in the Empire State would pay the AMT, which Congress originally created to ensure that the highest-income earners in the nation paid a fair share of taxes.
New York families would suffer serious tax consequences if an agreement cannot be reached. An average New York family with two children would lose $1,000 a year from the reduction of the child credit (from a $1,000 credit per child to $500 credit per child). A low income four-person family with two children making $34,000 could lose an additional $1,000 in tax credits from the changes in the Earned Income Tax Credit and refundability of this credit would be eliminated for many low income families.
The fiscal cliff also includes automatic cuts in federal spending, known as sequestration, which would compound existing fiscal challenges for New York State and its local governments. The State Division of the Budget has estimated that beginning in 2013, state and local governments in New York could lose approximately $5 billion in federal funding over nine years. According to Federal Funds Information for the States, the state would lose $609 million in aid in 2013, including $210 million in education funding, $137 million for health and human services, and $128 million for housing programs.
Alternative solutions to the fiscal cliff under consideration in Washington could also have harmful effects for New York. One example is the proposed elimination of the tax exemption for municipal bonds, which provide funds for essential capital infrastructure such as school buildings, roads, bridges, hospitals, environmental projects and other facilities. The state ranked first nationally in 2011 in long-term bond sales ($39.3 billion). The reduction or elimination of the municipal bond tax-exemption would result in higher borrowing costs and higher debt service costs, though some costs may be partially offset by additional revenues from taxes.