Edmund J. McMahon, Senior Fellow of the Manhattan Institute for Policy Research and Director of the Empire Center for New York State Policy, testified Monday before the Joint Legislative Fiscal Committees and argued against New York State tax hikes in Governor Paterson's 2010-2011 Executive Budget.
In his testimony, Mr. McMahon argued that increases in income taxes on the State's wealthiest residents may have a negative effect on total revenues. "Higher income taxes create a disincentive to work, save and invest in New York. They sap the working capital of small businesses, and they provide the state's most successful and mobile taxpayers with another reason to consider shifting their base of operations to lower-taxed states".
Based on the content of the 2009 annual Revenue Report of the Assembly Ways and Means Committee, New York has an "inherently unstable", "volatile" and "unsustainable" dependence on a small number of high-income taxpayers. According to figures contained in Governor Paterson's 2010-2011 budget documents, the highest-earning one percent of New York income taxpayers generated 43 percent of total income tax receipts in 2007 - the highest such share on record.
Mr. McMahon went on to testify that "Economists and tax policy analysts have long recognized a link between taxpayer behavior and changes in marginal rates, especially in higher income brackets, where taxpayers have more control over the timing and nature of their incomes. When rates rise sharply, taxpayers respond by working and earning less, by shifting their tax "domicile" to lower-tax jurisdictions, and by using legal strategies to shift or shelter income in tax-exempt investments."
In all, Mr. McMahon recommended the four following suggestions:
1. Do not add any more to the state tax burden.
2. Commit now to allowing the temporary PIT (Personal Income Tax) increase to sunset on schedule at the end of 2011 - if not sooner.
3. Index PIT brackets to inflation as part of the 2010-2011 budget.
4. Eliminate unwarranted tax credits and preferences - such as the NYS Film Production Credit program which provides a 30% tax credit (35% if in NYC) for production costs if a film is made in New York State.