With a deteriorating mass transit system, despite high and rising taxes and fares, and soaring rents (and property tax revenues from renters), young workers have been leaving New York City since 2015, a trend that has accelerated since the COVID-19 pandemic. And there is talk that the wealthy will move away since they will now have to pay taxes, after not having to pay taxes in the past, according to various headlines over the past two years. From “not taxing the rich,” according to those headlines, New York is suddenly taxing the rich more than any other state. Even California.
In reality, of course, New York already taxed the rich, and everyone else, far more than any other state. And it isn’t close. As I showed here…
In FY 2017 New York State’s average state and local government tax burden was 13.8% of state residents’ personal income, compared with the U.S. average of 9.8% and 10.3% for California. If New York City were a separate state, its burden would have been 15.1% of income, and rising, compared with 12.9% on average for the rest of the state. And at that level, according to any elected officials who didn’t want to face a primary, and most of the local media, city residents deserved deteriorating public services, because they weren’t paying enough.
There is one group of people, however, who face a very different tax burden in New York, compared with other places.
Retiree David Fisher, 69, has lived in New York state since age 27. He has found that while living there was expensive while he was working, New York is much more affordable in retirement. This is primarily for three reasons: New York State doesn’t tax Social Security or retirement account distributions, the state has a program to reduce property taxes after age 65, and there’s a low cost of living in the Rochester, New York, area where he lives.
Retired public employees, like the Senior Voters in our tax analysis of three prototypical Brooklyn couples, have it even better – none of their retirement income, paid for by poorer working serfs, is taxable.
This is the third and last post in a series on taxes and generational equity in 2020. The posts compare the federal, state and local tax burdens of three hypothetical couples, the Senior Voters, the Young Hopefuls, and Chad the Private Equity Guy and his second wife Trixie, using Turbo Tax and other information. The first post, which included a spreadsheet with the data for three couples, is here.
A review of the federal tax burden followed. The federal government seems to have been captured by the rich and their lobbyists, along with older generations, and the tax code reflects that, with work income taxed twice and investment income taxed at a lower rate.
In many places, in contrast, state and local government has been captured by public services producer interests, notably the public employee unions, and rising taxes and service cuts reflect that. So does the tax code. That is particularly true of New York State in general, and New York City in particular. Let’s chart the three couple’s tax burden in 2020, before New York State’s taxes were increased again, excluding sales taxes, which are also high in New York (and have also been increased recently).
The data shows that the Young Hopefuls paid 10.0% of their income of $81,600 in New York State and New York City income taxes and property taxes included in their rent. Chad the Private Equity Guy and Trixie paid fully 23.6% of their income of $200,000 in state and city taxes, but only because their income was temporarily reduced by financial maneuvering to realize capital losses in early 2020, reducing their income for tax purposes. Most of that tax burden was in the form of property taxes on their expensive luxury condo. Meanwhile, the Senior Voters paid just 3.7% of their retirement income of $203,600 in New York State and New York City taxes. They paid $7,575 in state and city taxes, less than the $8,195 the Young Hopefuls paid, despite having an income that was 2 ½ times higher.
Considering New York State and New York City income taxes alone, the Young Hopefuls paid 6.1% in taxes. Chad the Private Equity Guy and Trixie, with their much higher income, paid 8.5%. But the Senior Voters, with an income that was higher still, paid absolutely nothing.
What would have happened if Chad and Trixie had their usual high income, recording $6 million in capital gains income?
In that case in 2020, back when New York supposedly refused to tax the rich, they would have paid 12.7% of their income in New York State and New York City income taxes, higher than the 8.5% they actually paid on their reduced income of $200,000 in 2020, double the 6.1% of income the Young Hopefuls paid, and well above the zero percent of income for the Senior Voters.
Once again, the rich have controlled the federal government for 40 years, under the administration of both parties. That is why Chad and Trixie are so advantaged at the federal level. But the New York State and New York City personal income taxes tax investment income at the same rate as cash work income. There is no special exemption for Chad and Trixie, and no special lower rate.
Although Chad and Trixie’s New York State and New York City income taxes would be higher as a percentage of their incomes in the $6 million scenario, their total New York State and New York City tax burden would be lower lower. The $4.5 million value of the property they live in is scaled to that higher income, and the property tax burden of $30,552 is just 0.5% of their usual income. The property tax is the same regardless of income, so it is 15.3% of their temporarily lower income of $200,000 in the year 2020. More on property taxes later.
Who does get the special personal income tax deal in New York? The currently retired, the richest generations in U.S. history, and the interest group that owns the New York State legislature – unionized public employees. All Social Security income is exempt from New York State and New York City income taxes, as it is exempt from federal personal income taxes. For private sector workers, the first $20,000 in other retirement income is also exempt, starting at age 59 1/2 (down from age 62).
There are additional “progressive” and “conservative” proposals to increase that exemption. Both Democratic and Republican state legislators have proposed eliminating income taxes for private sector retirees over the years, over and over and over again, even as additional taxes on work income are added. The 0.34% MTA payroll tax, already bonded against and spend but still collected to pay the bonds, and the NY Family Leave Act payroll tax, introduced not long ago at 0.27% but now up to 0.511%. Add the two together and that’s an additional 0.85% tax on work income added recently, or nearly one percent. Plus future increases.
But there is already a “progressive” exemption for all public employee retirement income, not matter how high it is, no matter how high total income is, no matter how high taxes rise on working serfs, no matter how young a public employee got to retire and never, ever do anything for anyone else again. So the Senior Voters, two teachers who got to retire at age 56 (after having been promised retirement at age 62) haven’t paid a dime in New York State and New York City income taxes since then.
There are 37 states that don’t tax Social Security income, and New York is one of them. While there are still federal taxes on Social Security for some, New York doesn’t tax Social Security income at the state level, and will only tax some of the income from a retirement account.
Frisch explains how these tax savings work for New York retirees. “If someone has an IRA distribution, a distribution from a 401(k), or an employer-sponsored pension, then the first $20,000 of distributions come out New York state tax-free,” Frisch says. “You’ve got to be over the age of 59 and a half to get this $20,000 exemption, but it is available for both spouses.”
And Frisch says there are extra benefits for people who spent their careers in public service, working as a teacher, or at a public university like Fisher, who has a 403bthrough TIAA. “If you have a New York pension, meaning you are a teacher, a policeman, firefighter; or a government employee, a federal government employee, or a state government employee with a pension, those pensions in their entirety are exempt,” Frisch says. “Teachers have a TIAA-sponsored plan, and in many instances, those might be exempt as well,” he adds.
That’s in Rochester. In New York City, teachers have a plan that New York City taxpayers guarantee at a 7.0% return every year – no matter how severe the consequences. Why does the budget of the Administration for Children’s Services get cut every economic cycle, leading to the deaths of children known to the agency, followed by the firing of its direction in a “reform,” in every administration, including Mayor DeBlasio’s? That’s why.
Every single city administration. Because that’s “progressive.”
When it comes to taxes in retirement, Fisher says that New York’s income tax laws for retirees have been kind to him. “I, in essence, pay zero income taxes,” says Fisher.
The exclusion of public employee pension income from state and local income taxes in New York is longstanding. It is based on an amendment to the state constitution slipped though at some point in the distant past, one that says “The income of public employees shall be taxable except pensions.”
Things have changed, however, from whenever that deal might have been snuck through. Public employment once featured low pay but secure pensions, and the tax exemption might have been considered part of the deal. In New York, however, the public employee unions have cut political deals for one retroactive pension increase after another for 25 years, even as later-born generations of New Yorkers (the one percent aside) have become relatively poorer (as in the rest of the country). And public employee pay has increased as well, at least for certain categories, because if the public employees aren’t paid at least as well as similar private sector workers, their qualifications, motivation and work is simply reduced proportionally.
All those retroactive pension increases, fraudulently described when they were even disclosed, represent a breaking of faith by New York’s public employee unions with just about everyone else. They are as much in solidarity with other NYC workers as Jeff Bezos. And the deals have left the New York City pension funds underfunded, particularly those for teachers, police officers and firefighters, leading to tax increases and service cuts. In this context the exclusion of public employee pensions from taxable income, and thus from any share of the sacrifices those pension increases have created, is very, very, very unjust. Just as unjust as the fact that at the federal level, as Warren Buffett pointed out, the average CEO has a higher marginal tax rate than their secretary.
After all these deals, as I showed here using Bureau of Economic Analysis data…
The average (mean) earnings (cash plus employer benefits) those working in the Finance, Insurance and Real Estate sectors (including both employees and the self-employed) was $122,813 that year. The rest of the private sector averaged $81,575. The mean earnings for state and local government workers Downstate, meanwhile, was $124,095. That is not only 52.1% higher than the mean for the rest of the private sector, including all the one-percenters outside finance, a record high difference. But also – for the first time – more than the Finance, Insurance and Real Estate sectors.
In 2020, therefore, the Young Hopefuls managed to get the average private sector work income for one worker according to this data, as they are at median family income according to American Community Survey data. But they required two people working to get that much, instead of one, meaning their pay per worker was actually half. That is pretty much the situation of young hopefuls throughout the United States.
Since the Young Hopefuls have no tax-exempt fringe benefit income, all of their income is subject to New York State and New York City income taxes, including their unemployment income. In contrast, in addition to the tax-free Social Security, pension and investment plan cash income, the Senior Voters also get tax-free Medicare and retiree health insurance benefit income.
With everything you have heard about the fact that New York “doesn’t tax the rich” over the past couple of years, everything in the media, every statement by Mayor DeBlasio and state legislators, have your heard or read anything about the fact that retired public employees pay zero in New York State and New York City income taxes? Anything questioning the fairness of this, or even justifying it? Anything at all? In all the fiscal crises of the past 30 years, at times when taxes were being increased and services cut, can you recall a single instance of a New York City media source or elected official suggesting that this exclusion of retirement income is unfair? Even once? (Not including me, of course).
The answer is no.
It should be noted that in Illinois, a state where property taxes have soared to pay for costs from the past run up by today’s seniors and their politicians even as public services have collapsed and social service bills remain unpaid, all retirement income, public and private, is exempt from the state income tax. In fact, additional state income tax deals and property tax deals for seniors continue to be proposed an enacted all over the country, even though the generations now in retirement are far richer, on average, than future retirees are likely to be. And no one ever dares to question the generational fairness of this, just as no one ever dares to bring up generational fairness in general.
Take the case of Michigan, where there is a push to (once again) make that state’s income tax as unfair as New York’s. There, as the state fell toward bankruptcy and with its young workers moving away in droves, a Republican Governor did push though a policy of requiring the retired to pay income taxes, albeit with a partial exemption that workers don’t get. That is one of the very, very few examples of a Republican being in favor of more fairness for the later-born that I can think of over the past 40 years. So needless to say the Democrats, who have generally appealed to the young by pretending to rob them slightly less than the Republicans, sought to take advantage.
Gov. Gretchen Whitmer, a Democrat, has proposed undoing a 2011 tax change that taxes some retirement income. The proposal has support from lawmakers from both parties, though some Republican legislative leaders say they are hesitant to simply repeal the policy without considering the fairness of how retirement income is taxed.
But defenders of the tax, who include some Republican legislators and business groups, also cite fairness as a primary concern — namely, that all forms of retirement income should be taxed similarly. The 2011 tax change ended a 100-percent income tax break for government pensions and lowered deductions for private retirement income, including pensions and individual retirement savings, bringing more parity to public and private retirement benefits.
Fairness for the next generation of taxpaying workers? No one brought it up.
“If somebody wants to propose a bill that broadens tax relief for senior citizens, AARP would be in favor, I can say that without any hesitation,” said Mark Hornbeck, a spokesman for AARP Michigan, whose members largely support repeal. “We have not been lobbying for that. We have enough to get done to get this pension tax repeal through.
Even though retirees already pay less than workers with the same amount of income.
The 2011 tax changes were phased in based on a retiree’s birth year. The oldest retirees, those born before 1946, are unaffected. Those born between 1946 and 1952 can deduct the first $20,000 of retirement income for single taxpayers and $40,000 for married couples filing jointly prior to age 67; when they turn 67, they can claim those exemptions against all income, regardless of the source.
The youngest retirees, born after 1952, don’t get to deduct any retirement income until they turn 67 — which will happen starting next year — when they also can claim more limited $20,000 and $40,000 income tax exemptions.
Michigan seniors feel fully entitled to not pay any taxes, because no one discusses the situation they had when working compared with today’s workers, the situation they have in retirement compared with the future of today’s workers, and the wreck of an infrastructure they have left behind. For Generation Greed, it’s gimmie, gimmie, gimmie, and to hell with everyone else.
Whitmer, who campaigned on repealing a tax on Michigan pension income introduced by her predecessor, Gov. Rick Snyder, made no provision for such a change in her 2021 budget proposal. “I’m unhappy,” said Lewis Newman, Jr., 64, of Detroit, who retired from Chrysler in 2007. “When you put words out like that, you’ve got to stick to them.”
Retired with a nice fat pension after voting for a multi-tier contract that screwed later-hired workers, I’m sure. Chrysler went bankrupt and was bailed out, with those rich pensions that later generations of workers won’t be getting made whole.
The term “pension tax” is a bit of a misnomer. The legislation pushed by Snyder didn’t create a new tax, but it removed total and partial tax exemptions for income from public and private pensions, respectively. People born before 1946 were exempted from the change, and there was a phase-in for other seniors.
Snyder sold the pension tax as a fairness issue. He said it would treat all pension income equally for tax purposes. Also, with Michigan’s aging population, it would avoid placing an ever-increasing burden on young people to fund state services, many of which are heavily used by seniors.
And what is the situation of young adults in Michigan, compared with Generation Greed? Like the rest of the country, only worse.
Michigan, Three Rivers, and indeed the country can rejoice that jobs are again being created in the auto industry, many at higher wage rates. But a grim “new normal” reality remains:
• Auto-related employment in Michigan is 57% lower.
• Fewer than half the 500,000 jobs lost over the past decade have been recovered.
• Median household income in Michigan has fallen to $45,000, below what it was in 1999.
• Once the country’s 11th richest state, Michigan is now 34th.
The new starting wage at American Axle translates into an annual salary of under $25,000, not enough to sustain a middle-class lifestyle. Tom Lowry, Three Rivers’ mayor who runs a local bookstore, admits, “it is hard to survive on the $10 to $14 wage being offered at American Axle.” A single person, he says, might make it on that, but not a family. Nonetheless, Lowry hails the plant’s expansion as great for the city and county, where it is the largest employer.
At least that is a wage. Many of those hired over the past 20 years to work in Michigan are doing so as temps, even on assembly lines, matching the national trend.
And, it is worth repeating, a similar retirement income tax exclusion did pass in Connecticut, another state young workers and jobs had been fleeing for two decades.
With AARP, an organization that (like the Republicans and the Democrats) I am unwilling to ever join, lobbying for the deal. The only thing more selfish than the average Generation Greed senior is Generation Greed seniors as a group, as Reinhold Niebuhr would have predicted.
Both states’ seniors are surely aware of what later-born generations are facing, compared with themselves. And yet they demand more, and more, and more paid for by those who have been left with less. Just like C-suite executives over the past 25 years. Just like certain public employee unions in New York. At least the C-suite guys, Hedge Fund guys, Private Equity guys, etc., have faced some blowback from elected officials and the media, and psychological accountability. Generation Greed has not.
And politically, Republicans screw the young – and cities like New York – to pander to seniors and their own special interests, because the young and city dwellers vote for Democrats. And Democrats screw the young – and cities like New York – to pander to seniors, their own special interests, and swing voters, because the young and those in cities vote for them anyway, because they have no choice.
Getting back to New York City, consider property taxes.
Property taxes are assessed on property wealth, not income, which is why college political science professors usually claim that they fall more heavily on the poor. If you lose your job, and your income drops, you still have to pay just as much in property taxes as you did when you earned more. Property taxes are, therefore, considered a “stable” revenue source for those on the receiving end, but can become a crushing burden for those paying. If you haven’t saved, the tax man is just as likely as the mortgage holder to foreclose on your home and evict you. More likely, in fact, under the politics of 2021.
“The left” is thus opposed to property taxes, or at least property taxes on interests associated with the left. (The non-profit sector is generally exempt from property taxes). But what did a left-wing history of metropolitan St. Louis I read last year, The Broken Heart of America, conclude about the area’s low property taxes and many tax abatement deals? Page 403…
Property taxes are progressive (thus falling more heavily on the rich) and are earmarked for schools, whereas sales taxes are regressive (thus falling comparatively heavily upon the poor) and flow into the city’s budget for general operating expenses.
Property taxes are progressive? That’s right, because those who are richer not only have higher incomes, they also tend to have greater property wealth. True of households. True of businesses as well – richer company own or rent fancier and more costly commercial real estate, and occupy more square footage.
In my prior post I showed that sales (consumption) taxes, theoretically regressive, could, in fact, also be progressive, and fall more heavily on those who are richer. By rebating some money per person and therefore making the first few thousand dollars of spending tax-exempt. Because those with higher incomes spend more, and in particular spend more on new things rather than cheaper used things, like used housing.
And that income taxes, theoretically progressive, could be make regressive by exempting the types of income received by the better off, or taxing that income at a lower rate, while taxing work income multiple times.
The real truth about taxes is that the tax policies that are publicly debated and disclosed tend to be progressive, whether the tax is on income, consumer spending, or property and other wealth. While the actual tax burden that results from special deals, exemptions, and privileges tends to be regressive for all those types of taxes.
Let’s simplify the chart and focus on the Young Hopefuls and Senior Voters alone.
The data shows that the Senior Voters paid 3.8% of their income of $203,600 in property taxes in 2020, while the Young Hopefuls paid 2.0% of their income of $81,600. That seems progressive.
But the Senior Voters are rattling around in a 2,500-square-foot house, while the Young Hopefuls and Baby Hopeful are packed into a one-bedroom apartment. Because Chad the Private Equity Guy and Trixie are cash rich, they live in a luxury condo worth $4.5 million. And because the Senior Voters are benefit rich, they live in a rowhouse worth $2.1 million. The estimated value of the Young Hopefuls’ tenement apartment is just $178,375.
The Young Hopefuls’ landlord is paying 0.9% of the value of their old tenement apartment in property taxes, and passing that cost onto them in rent. But Chad and Trixie only paid 0.7% of the high value of their luxury condo. Why? That building must retain some residual tax exemption under the city’s 421a program, which privileged new construction over existing buildings – and those who live in them.
That policy was enacted during the 1970s, after the first time New York City’s special interests loaded it with so much debt and pension funding obligations that no one was willing to build anything there without subsidy. The idea is that new building investors, and their future residents and commercial customers, would not have to pay as much of those costs from the past. New buildings in most of the city, aside from an “exclusion area” in Midtown and the Upper East and Upper West Sides, were fully exempted from property taxes for a decade or more, and then had a long phase in before they had to pay full taxes.
Later, when the city boomed, the original justification for this special tax deal disappeared. Yet it still continued as a result of political deals, often associated with a requirement use some of the property taxes not paid for some social goal like affordable housing. The fact that the city would have had far more to spend on other things if the buildings just paid their fair share of property taxes did come up the last time the program was re-authorized. Those purported enemies – Cuomo and DeBlasio – cut a secret deal to continue the program on even richer terms, diverting what would have been future city revenues to construction union pension funds as well as affordable housing, and campaign contributions. Page 9…
In March of 2017, the NYC Independent Budget Office analyzed the then-proposed Affordable New York Housing Program and estimated that it would cost the City a total of $8.4 billion in lost tax revenue over the next ten years, an estimated $1.2 billion more than the cost if the now-expired 421-a program continued unchanged.
In the New York of the 2000s and 2010s, 421a did nothing to spur development either. It just allowed the pre-existing owners of developable sites to charge even more to developers, who then had to charge more for their buildings, which became even less affordable even as the city lost property tax revenues.
From the Broken Heart of America…
Property tax abatement—whether through municipal ownership of commercial property (Chapter 1000) or through the negotiation of an extensive tax amnesty (Chapter 353)—was intended to be a way to raise revenue under the austere terms of the Hancock Amendment. The city of St. Louis repeatedly agreed to foreswear tax collection in the hope that this kind of subsidized development would provide other sorts of revenue or greater revenue down the line. The city, that is to say, pursued a paradoxical strategy starting with perverse incentives, starting with a long-term incentive toward gentrification, because in the absence of the ability to raise taxes, the best way to raise revenues was to raise property values. This is a problem (and solution) bedeviling many American cities today.
New York has no problem raising taxes, over and over again. That only makes deals to not have to pay them even more valuable. It isn’t Chad and Trixie who get the richest deal out of the property tax system. It is the Senior Voters, who only paid 0.4% of their incomes in property taxes.
The property tax burden on the Senior Voters is relatively low, given New York City’s extremely high tax burden overall, for two reasons. First New York City has its own personal income tax and business income taxes, something virtually no other localities in the country have, high sales taxes, and many other taxes besides. These extra taxes pay for a substantial share of New York City’s excess local government spending burden – including the burden of the Senior Voters’ retroactively enriched pensions.
According to the 2017 Census of Governments, New York City’s total local government tax revenues equaled $89.68 for every $1,000 of its residents’ personal income, far more than double (114.1% higher than) the national average of $41.88. But NYC’s property tax revenues per $1,000 of personal income, at $40.11, were just 32.8% higher than the U.S. average of $30.20.
Note that for workers such as the Young Hopefuls and private sector retirees, those somewhat above average NYC property taxes are on top of that heavy NYC local income tax, but retired public employees don’t pay the income tax. Meanwhile, the property tax burden is higher compared with income in other parts of the state that don’t have local income taxes.
Second, based on a state law passed in the early 1980s the New York City property tax system favors 1 to 3 family homeowners at the expense of residents of multifamily buildings and owners and tenants of commercial property, even within the property tax system. State law limits how much the assessed value of a class 1 property (1 to 3 family homes) in New York City can go up each year. It cannot go up more than 6% from the year before or 20% over five years.
If that doesn’t seem like too much of a limitation, consider when the law was passed. In the late 1970s the value of New York City’s property was at a low ebb, to the point where many properties were worth nothing and abandoned. Then the city started to recover. The cap was passed in the early 1980s, and prevented the assessed value of homeowner property from reflecting that recovery.
This perk for homeowners was seen, by former Mayor Koch, as the equivalent of rent regulation for homeowners suburban parts of the city. Rent stabilization prevented long time tenants from being priced out of Manhattan, where the disparity between market and regulated rents is greatest. A limited assessment increases for 1 to 3 family homes kept middle class homeowners from being pushed out of suburban areas of the other borough by the property tax burden. It was seen as a way for the middle class to stay in their homes, at a time when middle class people had been fleeing. And it was seen as fair, because rent regulation, public housing and programs such as Mitchell Lama reduced the market value of multifamily housing, and thus their share of the city’s property taxes.
But over time the effect of this law has become extreme.
New York City’s property taxes have long been criticized for having an irrational assessment and levy structure that places an uneven burden on low-income communities and communities of color. Homeowners in some of the city’s most booming neighborhoods have among the lowest effective property tax rates, as do some of the most expensive coops and condos, while homeowners in places like the Bronx and Staten Island, which have not seen rapid gentrification, pay a much higher percent of their property’s value in real estate taxes. Tenants often serve as a release valve for the high taxes on large rental buildings. With property taxes now making up a larger portion of the city’s total revenue, the unequal tax burdens represent yet another example of the pandemic crisis being borne largely on the backs of poor black and Latino New Yorkers.
New York City keeps property taxes down for 1-3 family homeowners, and for new buildings that benefit from programs such as 421a. The beneficiaries of rent regulation don’t pay as much in property taxes, because their lower rents lead to lower building net operating incomes and thus lower property tax assessments. Rent freezes during the DeBlasio Administration, and anti-landlord changes to the rent regulation law, have further reduced the property taxes the occupants of rent regulated buildings pay. Subsidized housing, including public housing, doesn’t pay any property tax at all. Despite all these deals, the total NYC property tax burden has soared.
That’s where all the revenues the DeBlasio Administration handed out to all those interest groups have come from — property taxes supported by soaring rents. Remember, as I showed here…
American Community Survey data show the median gross rent of NYC apartments increased 40.0% from 2000 to 2019 after adjustment for inflation, despite the many NYC households who live in subsidized and rent regulated housing and had far lower increases.
And now? Property tax revenues from commercial properties (offices, retail, hotels) are set to plunge, leading to an even greater burden on young tenants of market rate rental buildings such as the Young Hopefuls.
Some homeowners, including the Senior Voters, get a better deal out of the assessment income cap than others. Ironically the suburban areas of the city, Staten Island, eastern Queens, the southern rim of Brooklyn and the east Bronx, do not get the greatest benefit from this deal. Because at the time the deal was passed those areas were relatively stable, and their property values and assessments reflected that – so the limited increases started from a higher base.
The big winners are gentrifying areas, such as “Brownstone Brooklyn,” where the state law locked in the low property assessments from the time when they were poor, declining, often redlined neighborhoods.
While the assessment limitation is intended to allow long time residents such as the Senior Voters to stay in their homes, moreover, they can cash in the value of that subsidy and take the proceeds with them to Florida. How?
Let’s say the Senior Voters decided to sell their house, and a bunch of Young Hopefuls decided to try to buy it. To bid highest and get the house, the bidders would have to stretch as far as their income and other expenses would allow. But the amount they could afford to pay in a monthly mortgage payment is affected by how much they would also have to pay in property taxes. So the property tax assessment break inflates the value of the Senior Voters’ house, and the amount of money they get to cash in while moving to Florida. The Young Hopefuls would end up paying just as much for housing as if property taxes were higher, but in higher mortgage payments rather than property taxes.
(This works in reverse in Upstate New York, where high property taxes and heating and maintenance costs have caused the value of houses to plunge).
For this reason the shift in the property tax burden, if a lawsuit against the state law limiting the assessments on 1 to 3 family homes were to succeed, would not be a great as the current shares of market value and property tax paid would imply. With lower property taxes as a share of real value, the market value of multifamily housing and commercial property would rise, limiting the decrease in their taxes. Rent regulated buildings, moreover, already have the net operating income on which their property tax assessment is based depressed by rent stabilization itself, and would likely see little decrease in taxes.
On the other hand with higher property taxes as a share of real values, the market value of 1 to 3 family housing would fall, limiting the increase. Assessment is a circular process in which values depend on property taxes depend on values.
Today, however, the Senior Voters don’t have to sell to move and still keep the subsidy. They can take advantage of the property tax limitations designed to allow them to stay in their homes, move away, and rent the house out with no limitation on the rent they could charge. Rent it out like Mayor Bill DeBlasio. It’s kind of like tenants taking advantage of rent stabilization laws designed to help them stay in their apartments by moving to their summer houses in the Hamptons, and illegally subletting their apartments at market rates, keeping the difference between what they pay and the sublet tenant pays. Except that this isn’t illegal.
Moreover, imagine that the Senior Voters had the same income as the Young Hopefuls, and therefore qualified for Enhanced Star.
“Our property taxes in New York are high,” admits Fisher. “But, once you hit 65, there’s something called the Enhanced Star program, which means about $70,000 comes off of the assessed valueof my home and I pay so much per thousand on the rest.”
As noted, the assessed value of NYC houses is low even when the real value is high. The assessed value of a home that would sell for $2.1 million? It is just $36,547. While the NYC situation is extreme, virtually every place has assessed values for all properties that are comically less than actual values. The reason is to make everyone, even those paying far more than their fair share of the overall tax burden, believe they are getting a special deal, and not raise questions.
Frisch says there’s a reason this program exists, and high taxes contributed to its creation. “What was happening was people were leaving New York to go to more real-estate friendly states,” Frisch says. “There is a Star program, which is for anybody under a certain adjusted gross income. Then, there’s an Enhanced Star, which is for people over age 65.”
In 2019, residents of any age who own their primary residence and have an income of $500,000 or less can qualify for the STAR credit ($250,000 or less for the STAR exemption). To qualify for Enhanced Star, residents who own their primary residence must be age 65 or over, with a household income of $86,300 or less for 2019 and an income of $88,050 or less for 2020…For Fisher, who’s now 69, a few thousand have come off his property taxes on his $200,000 home each year since turning 65. “That program brought my property taxes down from $5,500 a year to about $3,500 a year,” he says.
The Senior Voters are too rich to qualify for Enhanced Star, as they were in 2014.
But that is something our state legislators have set out to change. To Assemblymember Peter Abbate, one of the mouthpieces of the public employee unions in Albany, since retired public employees don’t have to pay state and local income taxes, fairness requires that they also shouldn’t have to pay property taxes either! His big idea, introduced year after year with lots of co-sponsors, is for public employee pension income to not count when determining eligibility for increased tax breaks under the state’s STAR program. In fact, with an income of zero for property tax purposes, they would qualify for the Senior Citizen Tax Exemption and pay zero property taxes, to go along with zero New York State and New York City income taxes, on their actual income of $203,600. That deal, like the tax exemption in Michigan, is just waiting for the right 3 am to get snuck through that
progressiveevil New York State legislature, with no discussion and no disclosure.
This is a microcosm of what is happening in public policy in general. Many tax breaks and programs for seniors were put in place long ago, at a time when each generation was richer than the one before, and seniors were thus relatively poor. But after peaking with Generation Greed each generation has been poorer than the one before. So with the richest generations in or moving to retirement, you have these suggestions to allow them to pretend to be poor by pretending their income isn’t there.
Now I understand why, in parts of the state with no local income tax and thus an extremely high property tax burden, retired people are moving away. Imagine a senior with no pension and just $200,000 in 401K retirement savings, which will be a common situation among the generations born after 1957 or so, facing a property tax burden of $15,000 per year. In less than 15 years the entirety of their retirement savings would be gone, even if they had spent all of it on taxes and none of it on themselves.
But having seniors move away is definitely not bad for the economy. Here is a very brief description of the current state of local and regional economic development. Places that attract a growing share of young workers and entrepreneurs win, as in New York City prior to 2015. Places that young worker leave, leaving seniors and their burdens behind, lose, as in Upstate New York. Particularly given the categories in which NY governments spend so much more than other places, including pensions, and Medicaid for seniors.
Should New York do right by its aging citizens who worked here and paid taxes here for decades, if they are also willing to continue contributing their fair share in retirement? Absolutely, and without question. But should anyone else care if they leave for Florida? No, not as long as they don’t come back when they run out of money and need extensive Medicaid-funded benefits.
The people should be moving away, the people who have been robbed and sneered at, are everyone other than seniors, public employees, and oligarchs with 421a tax exemptions, who arrange to live elsewhere for income tax purposes.
Given how much more than anyplace else New York state in general and New York City in particular spends on retired public employees, there no is justification for exclusion of public employee pension income from state and local income taxes. The state constitution should be changed to allow that income to be taxed, and if the public employee unions want to be in solidarity with other workers in any way, that is something they should support. After all, the increased revenues are needed for additional pension contributions and retiree health insurance.
It seems that our political system, dominated by Senior Voters, the Executive/Financial class and the Political/Union class, has no conscience and knows know limits with regard to the future of the Young Hopefuls. And not just with regard to taxes. Until the start getting angry, organized and active, their future will continue to be cashed in.
Here is a partial list (just the ones I remember) of the New York state and local government tax increases in recent years. In spite of these, in spite of the tax burden overall, New York’s politicians, media, and interest groups continue to claim that public services are underfunded, and deserve even more. As long as public services are inadequate, they have “proof” that they are getting less funding than they deserve. They have done this since the massive retroactive public employee pension increase in the year 2000.
Property tax increase “for the schools.” Despite a massive increase in school spending over two decades, to a level far higher than just about anywhere else, education advocates continue to demand more funding, and push back against school reform and accountability (to the point where these have disappeared) on the grounds that they aren’t getting enough.
Dec 3, 2002 — Mayor Michael Bloomberg signs legislation raising New York City’s property tax rates … No one testified for or against the 18.5 percent property tax rate increase
Additional $millionaire’s tax.
Under the 2003 legislation, the state and city each added two income tax rate brackets, retroactive to Jan. 1, 2003. The highest bracket, set at 7.7 percent on the state income tax and 4.45 percent on the city tax, applied to taxable incomes above $500,000 for all filers. The second highest bracket of 7.5 percent on state taxes and 4.25 percent on city taxes applied to incomes above $150,000 for married filers (or $100,000 for singles and $125,000 for heads of households). This produced a combined top rate of 12.15 percent, compared to 10.5 percent under the prior law. The top rates were scheduled to remain in effect for three full years, expiring at the end of 2005; the second-highest rates were to be phased out over the next two years.
In 2004 and early 2005 the MTA worked closely with the Governor and State Legislature to develop funding sources that would address significant operating budget deficits projected to begin in 2006.
After the pension increases, and 20 years of paying for ongoing costs with debt (there has been 15 more years of doing so since).
Responding to those needs, the 2005-2006 State budget included three new or enhanced revenue sources for the MTA:
• An additional 0.125 percent (1/8 of 1 percent) regional sales tax throughout the New York State counties served by the MTA effective June 1, 2005, expected to generate approximately $110 million in 2005, approximately $202 million in 2006, and approximately $230 million annually beginning in 2007.
• An increase in the MRT-1 tax (mortgage recording tax) effective June 1, 2005, from 25 cents per $100 of recorded mortgage to 30 cents, expected to generate approximately $29 million in 2005 and approxi- mately $50 million annually thereafter.
• Increases to certain motor vehicle fees effective January 1, 2006. The MTA will receive 34 percent of the increase, expected to generate approximately $61 million annually.
Many of these taxes were diverted to spending elsewhere in the state.
In May 2009, Governor Paterson signed into law the Metropolitan Commuter Transportation Mobility Tax (MCTMT). The MCTMT is a new 0.34 percent tax imposed on the payroll expense of employers and the net earnings of self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). The MCTD includes the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester. The New York State Department of Taxation and Finance (the Department) administers the tax.
Some of this extra tax was diverted to spending elsewhere in the state.
For employers, the MCTMT applies retroactively from March 1, 2009. For self-employed individuals for years beginning on or after January 1, 2009, the tax applies to self-employment income allocated to the MCTD earned during the taxable year that that exceeds $10,000 per year. For 2009, 10/12 of the allocated self-employment income is subject to tax. The MCTMT is not deductible in determining entire net income for purpose of the New York State and City corporate income taxes, the New York City unincorporated business tax, or the New York State and New York City personal income taxes.
Another $millionaire’s tax in the state that didn’t tax the rich.
Mar 28, 2009 — Gov. David A. Paterson and leaders of the Legislature have reached a deal to temporarily raise taxes on New York’s highest earners in order to close the state’s yawning budget deficit, lawmakers and officials involved in the talks said on Saturday. The new plan would raise $4 billion a year… the largest state income tax increase in recent history…The proposed tax has been called a “millionaires’ tax.”
The temporary $millionarie’s tax that didn’t exist has bee extended multiple times, and them made permanent.
This was before New York State finally added a $millionaire’s tax in 2021 – although in a year to two, if the stock market corrects to normal, there will be additional calls to start taxing the rich.
The cat-and-mouse game between state tax collectors and wealthy New Yorkers who are moving to Florida has reached new levels — and gone high tech.
New federal tax laws limiting the deduction of state and local income taxes have created incentives for wealthy New Yorkers to move to Florida or other lower-tax states. New York Gov. Andrew Cuomo last month blamed wealth flight for the state’s $2.3 billion revenue shortfall in December and January.
“Tax the rich, tax the rich, tax the rich,” he said. “We did. Now, God forbid, the rich leave.”
Tax the later-born tax private sector workers, tax their employers, tax the poor. We are underfunded! Not enough cops! Not enough teachers! Not enough home health aides! Not enough raises! Not enough pension increases! Not high enough construction costs!
At the same time, New York can’t afford to lose many millionaires or billionaires. The top 1 percent of earners pays 46 percent of the state’s income taxes, and Cuomo said that “even if a small number of taxpayers leave, it has a dramatic effect on this tax space.”
Stories of the wealthy counting the number of days they spend in New York and Florida to make sure they comply with the residency rules have been a staple of the New York and Palm Beach social circuit for decades. Conventional wisdom holds that if you’re out of New York State for 183 days, you don’t have to pay state taxes. But tax advisers say that while the number of days matter, the real test for auditors is “domicile” — being able to prove that a taxpayer’s permanent, primary home is in Florida rather than New York. The domicile test has become increasingly complicated as today’s migratory rich maintain four or five homes, and rarely spend much time in any one place.
I’m no fan of the executive/financial class, and the way they have basically pillaged the economy at the expense of the serfs and bankrupted the federal government by getting out of paying taxes. But in New York City, at some point things went so far that I have come to believe the political/union class is even worse. And worse. And worse.
And they still feel resentful and entitled. Pay up, take what you get, and shut up. They owe you nothing. Not police protection. Not schools. Not mass transit. Because they underfunded. You can read about it in the New York Timesand on Chalkbeat, and hear about it on WNYC and in budget hearings.