On February 26, 2018, Kathryn Wylde, President and CEO of the Partnership for New York City, testified to the New York City Council on the impact of the federal tax law on New York City. Below is a summary of her comments.
“As the nation’s business and real estate capital, New York City can expect to benefit from federal tax reform, particularly the reduction of corporate tax rates and of taxes on repatriation of profits from overseas operations. Many corporations have already announced plans to dedicate a portion of tax savings to salary increases for lower wage employees, additional employee bonuses and expanded investment in the U.S. But not all businesses are realizing equal benefits. For example, partnerships like legal and accounting firms and boutique investment banks and venture capital firms—all major employers in the city—are not getting the tax advantages of so-called pass-through entities under the new law. And many implications of the law are still not fully understood.
The biggest negative impact for the city is the loss of state and local tax deductibility for individual taxpayers, specifically capping those deductions at $10,000. As a result, residents of New York and nine other states with high property and personal income taxes will not see the same tax reductions as tax filers in lower tax states. On the contrary, some highly compensated New York employees — think Wall Street, corporate executives, tech entrepreneurs, entertainers, hospital administrators and doctors—will see a tax increase.
Contrary to some political rhetoric, the Trump tax reform is probably going to lower the taxes of most low- and middle-income households, although not as much here in New York as in other states. Our Partnership analysis shows that the typical New York single taxpayer earning more than $500,000 and married taxpayer earning more than $750,000 will have a bigger tax obligation because of the inability to deduct state and local income and property taxes.
There are about 60,000 tax filers who earn over $1 million in the state, most of whom will be paying between 52 and 57 percent of their marginal income to the government, with the highest tax burden falling on residents of New York City and its suburbs.
The taxpayers our city and state rely on for most of their revenues are severely impacted. The top one percent of tax filers—city residents who earn more than $700,000—account for 49 percent of all city income tax revenues and also generate significant economic activity through their spending power. These are 37,200 households out of 3.7 million total income tax filers.
There is also a competitiveness issue. New York residents whose taxes are not actually increasing under the new law—due to lower rates, the child tax credit, and higher standard deduction—will still fare worse than residents of most other states. An average family of four earning $175,000 will pay 25 percent of their income in taxes in New York, but only 14 percent if they reside in Florida. For the family earning $750,000, 40 percent of their income will be spent on taxes in New York versus 30 percent in Florida.
So the federal tax law will help our businesses compete in global markets, but it will make it more difficult and more expensive for them to recruit and retain top talent. Employers in key industries are calculating how to respond to this challenge— should they increase compensation to offset the tax burden, or should they relocate jobs to London, Asia, or lower-taxed American cities? In short, New York will be the global commercial center with the highest income tax rates in the world on its top earners. This will make it more expensive for employers to attract talent to the city and for entrepreneurs to build businesses here.
It is important that leaders in city and state government demonstrate their understanding of these issues. Governor Cuomo has included measures in his executive budget that attempt to offer some relief to those who will be most impacted by personal income tax increases. This is the right message to send to employers and taxpayers. On the other hand, proposals coming out of some quarters for another millionaire’s tax or other tax increases on high earners put the city and state in jeopardy of significant revenue and job losses. Anyone who thinks migration of jobs and high earners out of the city isn’t happening should speak to the realtors in Florida.
Elected officials around the country and world have quickly understood the competitive opportunity for poaching jobs and talent from New York. We urge the City Council and other elected officials to help fend off these efforts, first by acknowledging that we have a problem and second by looking at the current structure of the UBT and other tax laws and regulations to ensure that the city is taking whatever measures it can to mitigate the negative impact of the federal law on individuals and certain pass-through entities. We do not project that this tax law is a net negative for New York’s economy, unless we fail to deal honestly with its implications. We appreciate this Council hearing as an illustration of the kind of fact-finding and policy review that is necessary to keep New York competitive.”