Noting a reported increase in wealthy households in the New York City metropolitan area, Robert Frank of the Wall Street Journal is mystified that “New York still has huge budget problems given the wealth surge in 2009 and much-publicized tax burden of the wealthy.”

In other words, if we’re so wealthy, why does Albany still have a budget deficit?  Well, aside from the state’s lamentable failure to, you know, actually reduce spending from boom-time levels, the answer is simple.

Frank’s hook was a reported rebound in the number of “high net worth individuals,” or HNWI’s, in the New York metropolitan area.  HNWIs are further defined as “those having investable assets of $1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.”  In other words, stocks, bonds, certificates of deposit, money-market funds, and cash sitting in the bank or stuffed in the mattress.

New York HNWIs

New York State does not tax financial assets, per se.  It taxes interest income, dividends and capital gains derived from those assets by state residents.  However, some New Yorkers with $1 million or more in financial assets are nonetheless living on modest incomes, and thus pay little or nothing in taxes.  This is especially true for retirees who have much of their net worth invested in low-risk assets now yielding very low returns.  If you have $1 million or more invested entirely in tax-free municipal bonds, you pay zero in state taxes.  If you’re heavily into stocks and have been lucky enough to match or even beat the market during its recent recovery period, you also may still have a backlog of capital losses from the 2007-08 bear market, which can be used to offset your taxable income.

Consider the example of a wealthy retired federal government employee living in Chappaqua.  The stocks he owns may have been worth $1.2 million in 2007, dipped in value to $900,000 in 2008, and rose back over $1 million in 2009.  However, his 2009 state tax bill wouldn’t necessarily have been any higher unless he cashed in some of last year’s market gains to meet higher expenses — say, the down payment on a lavish wedding for his daughter.  And even then, he might still be able to offset his tax bill with capital losses he experienced in the 2007 market downturn.  Indeed, if his capital losses were big enough and his income from other sources hasn’t grown, he may not be paying more for a few years to come (although, to be sure, he’s still paying a much higher effective rate than, say, the guy who picks up his garbage).

(more…)

Governor Paterson has sent the Legislature a chapter amendment that would delete a proposed new hedge fund tax from the state’s pending 2010-11 revenue bill.   By approving the chapter amendment, which is expected to happen today, the state Assembly can erase the tax without voting all over again on the revenue measure it passed July 1.  The state Senate would have to approve the entire bill and the amendment before the revenue package could go to Paterson for his signature.

A new tax on the carried interest income of hedge fund partners who live in other states was approved as part of the revenue bill passed in the Assembly last month.   In addition to removing the hedge fund tax, the chapter amendment would clarify a tax on the incomes of non-resident partners in New York Subchapter S firms, and make a technical change to a provision allocating the state film credit.

The submission of the amendment deleting the hedge fund tax comes a day after Connecticut Gov. Jodi Rell hosted a dinner for leaders of the New York Hedge Fund Roundtable, and a week after Speaker Sheldon Silver first indicated he would rethink the tax.

** P.S. — The hedge fund tax was supposed to raise $50 million in the coming year.   There was no immediate indication of whether the Governor or Legislature have an alternative spending cut or revenue raiser in mind to cover that amount.  But when you’re talking about a $134 billion budget that’s probably way out of balance even assuming passage of the entire revenue bill, what’s another $50 million?

Notwithstanding media coverage predicting New York’s “latest budget ever,” it’s worth noting that all of the state’s 2010-11 budget appropriations already have been adopted.   What’s left hanging is a revenue bill encompassing $828 million in additional tax increases.

Assuming the pending legislation is adopted, New York’s per-capita state tax hikes over the past two years will come to $414 per capita — far more than any state including California, which has raised taxes by $312 per capita, according to this estimate. In fact, New York alone accounts for fully 29 percent of all the state tax increases proposed and enacted since 2009.   This may qualify New York politicians for yet another dubious achievement award.

(more…)

Governor Paterson has dropped a proposal to impose New York State’s personal income tax on the interest income of non-resident hedge fund managers from his latest preferred list of revenue-raisers to help pay for the 2010-11 budget appropriations the Legislature finished enacting two weeks ago.

The governor’s move is only symbolic, however. A package of tax and fee hikes including the hedge fund tax was passed by the state Assembly on July 1 and is the only live revenue bill pending in the state Senate. Moreover, the Assembly and Senate have refused to accept delivery of the program bill he sent up to them today.

(more…)

Governor David Paterson and the Democratic leaders of the New York State Legislature have agreed to impose $50 million in new taxes on non-resident partners in New York-based hedge funds.

(more…)

Albany likes to tax bad things, like cigarettes and, maybe soon, soda. But one State Senator’s new idea of a sin tax — on the defaulted sovereign nation of Argentina — would harm the state’s main cash cow, Wall Street. (more…)

New York has the second most progressive distribution of federal income taxes among the 50 states, according to a new analysis from the Tax Foundation.

From the Tax Foundation’s Fiscal Fact:

Taxpayers earning more than $200,000 earned 40 percent of [New York] state’s AGI but paid 63 percent of the state’s federal income taxes. Indeed, they paid three times as much in federal income taxes as every taxpayer earning under $100,000 paid combined.

Connecticut had the most progressive federal tax distribution, with filers in the above-$200,000 bracket paying 66 percent while earning 44 percent of adjuste dgross income (AGI).

The Tax Foundation analysis is based on IRS data for federal individual income taxes paid in 2008.  But New York State’s own personal income tax is similarly progressive, according to figures in the “Economic and Revenue Outlook” volume of the 2010-11 Executive Budget.

(more…)

While a relatively small number of taxpayers are shouldering the lion’s share of the federal, state and city income tax burden, everyone will soon be footing a bigger bill for rising government spending.  Nicole explains who pays what in this Post op-ed.

The Empire Center has posted Nicole’s piece along with other recent articles on New York income taxes in a special tax day feature here.

The lead business section story in today’s New York Times profiles the 10 highest-earning hedge fund managers.  A quick Google search indicates that only three of the firms run by these superstars — Soros Fund Management, Paulson & Co., and Harbinger Capital Partners — are based in New York City.

Two others — Renaissance Technologies and Icahn Capital — are based in East Setauket, Long Island and White Plains, respectively.  The remaining five can be found in Connecticut (SAC Capital Advisors of Stamford and ESL Investments of Greenwich); Chatham, New Jersey (Appaloosa Management); Chicago, Illinois (Citadel Investment Group); and Houston, Texas (Centaurus Partners).

To be sure, most of these guys either have trading rooms or a personal pied-a-terre in Manhattan.  So they don’t totally escape New York taxes, but are certainly in a position to minimize them based on how much time they spend in the city.

Memo to tax-hungry New York lawmakers: a fabulously successful hedge fund can be anywhere.  Even Houston, Texas.

As its 2009-10 fiscal year draws to a close, New York is on track to collect roughly $500 million less than originally projected from last year’s temporary “millionaire tax,” which raised the marginal income tax rate by up to 31 percent on taxpayers with incomes as low as $200,000.  The state’s official bean-counters (you know who you are!) may be inclined to blame this entirely on “timing issues,” or the shift of banker bonuses to stock options, or capital loss carry-forwards.  Think twice, folks, and lower your sights for the long haul:  Impending federal tax increases will suppress the growth in New York’s income tax base for years to come, complicating efforts to dig out of a deepening budget hole.  An op-ed in yesterday’s Wall Street Journal explains why.

(more…)