Assembly Speaker Carl Heastie (photo: The Governor's Office)
Higher taxes on New York’s wealthy are on the table in three places for this year’s budget negotiations. Governor Andrew Cuomo’s Executive Budget for 2018 includes an extension of the so-called "millionaire’s tax”. The state Assembly has decided to see the governor and raise him with their proposed “gazillionaire’s tax”, while Mayor de Blasio has proposed a “mansion tax”.
The Democratic-controlled Assembly favors them all. The Republicans, who control the state Senate, are against all three. But the governor exerts a great deal of control over the New York State budget process and holds most of the cards. And while the governor is the one proposing the extension of the millionaire’s tax, he doesn’t appear to support the others. So is there any reason for progressives to believe that the mansion tax, let alone the gazillionaire’s tax, might pass now?
For starters, taxes on the wealthy are broadly popular with voters. Just like raising the minimum wage, even Republican voters tend to favor these types of taxes, as do the wealthy themselves irrespective of party affiliation. A recent Siena Poll showed New Yorkers in favor of extending the millionaire’s tax by a margin of 74 percent to 23 percent, with 61 percent of Republicans on board along with 81 percent of Democrats.
On the other hand, Republicans are offering arguments that have worked before. They say that New York is already over-taxed, and that taxes on the high earners will just drive them to leave the state and take their job-creating business with them. Corporate-backed “non-partisan” groups take the same position, as Governor Cuomo often does as well.
If Republicans can be said to believe in just one thing, it is that progressive tax policies will drive the rich away and impoverish all who remain, bereft of “job creators”. From Ayn Rand and Galt’s Gulch, to Ronald Reagan and the Laffer Curve, to ALEC and Stephen Moore today, the argument that higher taxes will make the rich work less or move to some promised land of lower taxes is one of the most consistent pieces of Republican philosophy. But are any of their arguments actually grounded in observable reality?
Republicans rarely cite any empirical research to back their claims. Why should they when it’s just “common sense”? But does reality back up the “common sense” of the GOP? The answer is definitively “no”.
Study after study after study has shown no significant pattern of wealthy people moving from high-tax to low-tax states, and no noticeable change in the net migration rates of high earners between US states in the wake of changes in their relative tax rates. And there is no evidence that either hours worked or income earned by high earners overall is reduced meaningfully by higher tax rates.
Republicans can always find anecdotal evidence that high taxes will drive or are driving the rich from high to low-tax states. But one rich person who moves from Manhattan to Miami proves nothing. All kinds of people, rich and poor, move from New York to Florida every year. And all kinds of people move from Florida to New York. The net effect is tiny, and made up for by people moving to New York from other states and other countries.
New York’s millionaire’s tax first passed in 2009. As you can see here, here, here and here, the primary argument used against it was that rich people were going to move. And when the millionaire’s tax was renewed in 2011, the same arguments were made, including by Governor Cuomo himself.
With the better part of a decade’s worth of data, were the “common sense” mongers of the Right actually correct? No, no and no. New York’s rich haven’t flown off to lower tax states. Property values at the upper end of the New York real estate market have risen unabated. All their warnings have come to naught.
So Assembly Speaker Carl Heastie and Assemblymember Herman Farrell, armed with observable fact and measurable experience, have introduced the gazillionaire’s tax. It extends the logic of the millionaire’s tax with a series of four additional tax brackets starting at $5,000,000 and adding at most 1.5 percentage points of incremental tax on incomes over $100,000,000 per year. That’s not a typo, and yes there are multiple households in New York with annual incomes above $100,000,000, and former Mayor Michael Bloomberg’s isn’t the only one.
The objections to the gazillionaire’s tax are no different than the objections to the millionaire’s tax, and they are just as certain to be completely wrong in the real world. Republican arguments against higher taxes are premised in deeply faulty views of both human nature and economics. The richest of the rich don’t wake up every morning and say, “Hmmm, I will work today if my tax rate is 47 percent, but I will go back to sleep or move to Florida if it’s 48.5 percent.” We are talking about people who could never spend all of the money they have already earned. They keep working as hard as they do for a variety of reasons, like relative success, prestige, and actual enjoyment in their work, with take-home pay being just one item on a long list.
Arguments against the mansion tax are essentially the same but even weaker. They don’t even have “common sense” to fall back on. Where’s the common sense in stating that a 2.5 percent tax surcharge on proceeds in excess of $2 million will have any effect on home sales? Are people not going to move when it’s time to move because of it? Of course not. It’s just a wealth tax applied on a transactional basis.
Massive, long-term, structural trends -- trends that many Trump voters are incidentally rebelling against -- have been and will continue to drive the relative success of America’s, and the world’s, largest and strongest cities. Clusters of like-minded people, of competitive college graduates from all over the country and the world, will continue to grow and prosper. “Trends” that major industries, like financial services, are going to move to low-tax states are perennially flogged by the Right. But they never actually happen.
So the next time you hear someone say, “You can’t raise taxes on the rich in New York, they already pay too much and they’ll just move to Texas or Florida; it’s just common sense”, you should say, “Yes we can raise taxes on the richest New Yorkers, all of the data over many years and many studies has shown definitively that they aren’t going anywhere, so you can stick your common sense in a hot, humid, boring low-tax state with low-wage jobs.” Now that’s just common sense.
Gus Christensen is a financial consultant to non-profits and start-ups, as well as a former investment banker and political candidate.