Monthly Archives: April 2009

Federal and State Aid, Taxes

Another Hole in the Budget Plan

1 Comment

Posted by Eldar Beiseitov, April 27, 2009

While the Mayor has focused much attention in recent weeks on the municipal unions’ reluctance to agree to more than $700 million in savings outlined in the Preliminary Budget, there’s another big hole to fill in the budget plan. Piggy-backing on proposals made by Governor David Paterson, the Bloomberg Administration’s Preliminary Budget included plans to eliminate the city’s current sales tax exemption on clothing and shoes costing less than $500 and to extend the sales tax to a variety of goods and services that aren’t now taxed. But with much of this falling by the wayside in the state budget, the city may well be down nearly $600 million in new tax revenue the Mayor had expected.

The state budget adopted late last month extended the state’s sales tax to certain types of transportation, such as taxis and limousines. But it didn’t incorporate the Governor’s original proposals to extend the state sales tax to digital goods, entertainment-spending, cable TV, capital improvement construction work, non-diet soft drinks, and other items. Nor did it alter the existing state sales-tax exemption for clothing purchases under $110 that had been proposed.

Since the types of goods and services subject to city sales tax generally follow the state, the Mayor is likely to limit his base-broadening proposals to what already passed in Albany. Consequently, instead of being worth nearly $200 million, as the Mayor estimated in January, the reduced list would generate a more modest $23 million in revenues in 2010.

With the state also abandoning repeal of the clothing exemption, city retailers would be placed at a competitive disadvantage with suburban retailers if the exemption were ended for the city portion of the tax. So the Bloomberg Administration may well jettison this portion of its plan as well—along with the nearly $400 million in additional revenue the Mayor had expected from it.

The Mayor has also proposed increasing the city’s sales tax from 4.0 to 4.25 percent. He estimated in the Preliminary Budget that the increase would be worth about $300 million in new revenue in 2010. Given fiscal realities, the Mayor is likely to hang on to that proposal in the Executive Budget to be released later this week.

The sales tax rate increase, which requires approval by the state Legislature, is a common move in fiscally turbulent times. New York, like other cities, often looks to sales tax rate increases when revenues are falling because they are relatively straightforward to implement quickly and usually generate less outrage from taxpayers because they pay it in small amounts with each purchase rather than a lump sum as with property taxes.

But sales taxes tend to be regressive because purchases take up a larger share of income for less affluent households. For example, data from the 2007 U.S. Consumer Expenditure Survey indicate that a household with an income of roughly $35,000 spent about 46 percent of it on taxable purchases, while a household with about $125,000 in income spent just 30 percent. As a result, a 0.25 percentage point tax increase would cost the lower-income household $40 a year, but cost the higher-income household—which has over three times the income—only $93 a year.

Even with the revenue previously expected from these various sales tax increases, IBO projected a $1.4 billion shortfall in the Mayor’s 2010 budget. With another $600 million hole to fill, New Yorkers can expect more revenue raisers and service cuts in the Mayor’s upcoming budget plan.

Taxes

Another Wrinkle (Actually It’s Flat) in State’s Tax Increase on High-Income Taxpayers

Posted by Michael Jacobs, April 23, 2009

When New York State enacted a three-year increase on the personal income tax (PIT) for high-income taxpayers last month, few noticed an accompanying change in an arcane provision in the state’s tax laws. Because of the so-called “recapture” provision, many high-income taxpayers were already paying a single, flat rate on all of their income rather than getting the benefit of the state’s progressive tax rates. The new law not only adds brackets and rates but also expands the recapture provision. IBO estimates that New York City taxpayers will pony up about $2 billion more in taxes under the PIT increase—about $400 million of it due to the recapture rules.

So how exactly does this work? The state PIT increase expands the number of tax brackets from five to seven, with two new brackets carved out of the previous top bracket. The fifth bracket begins at $40,000 of taxable income for a married couple filing jointly and now ends at $300,000, with a marginal tax rate of 6.85 percent. The new sixth bracket ends at $500,000 and has a marginal tax rate of 7.85 percent—a 14.6 percent increase in the tax rate. The marginal rate for incomes above $500,000 (where the seventh bracket begins) is 8.97 percent, or 30.9 percent higher than the old rate.

Many of those falling in the new brackets will now see their tax bill increase by the full change in the marginal rates. Most joint filers falling into the new sixth bracket will have all of their taxable income taxed at the 7.85 percent rate, thus recapturing the benefits of the lower rates in the tax tables. If their adjusted gross income—taxable income before deductions and exemptions—is between $300,000 and $350,000, there’s a phase-in of the recapture rules.

Likewise, for most of those whose incomes fall in the top bracket the full recapture is in effect with all of their taxable income subject to the highest tax rate. For those with adjusted gross incomes between $500,000 and $550,000, the recapture again phases in.

IBO estimates that 89,000 out of the city’s nearly 2.3 million resident taxpayers will be paying a total of $2 billion more in state taxes in 2009 as a result of the PIT increase; the expanded recapture provisions account for about $400 million of that additional tax liability.

For filers with income near the thresholds for full recapture these provisions can account for most of their PIT increase. For example, a joint filer with $550,000 in adjusted gross income and $520,000 in taxable income will pay $12,318 more in state tax, over two-thirds of which results from the recapture. Because the recapture amounts do not increase as incomes rise above the $550,000 threshold, recapture accounts for a declining share of the total tax increase as incomes rise. Slightly less than 40 percent of the tax increase that a joint filer with $1 million in taxable income will pay results from the recapture rules.

The recapture provisions also mean the average tax rate and marginal rate for many taxpayers are one and the same, giving New York State’s highest-income residents a “flat” income tax. Of course, that doesn’t mean flat tax proponents are cheering the changes. Most proponents of a flat tax envision a single rate that is considerably lower than pre-existing top rates and one that applies to all taxpayers.

Sanitation

City‘s Recycling Goal Just Rubbish?

1 Comment

Posted by Doug Turetsky, April 13, 2009

While it has cost more to collect and dispose of a ton of recyclables than a ton of trash, the difference is narrowing as the cost of exporting garbage to landfills and incinerators outside the city rises. Last month the city signed a new 20-year contract for transporting refuse picked up by the sanitation department in Brooklyn to landfills and incinerators outside the city. The new Brooklyn contract is estimated to cost $134 per ton, well more than last year’s average citywide cost of $85.11. As a result, the fiscal incentive to promote recycling is increasing.

But the rising cost of exporting the city’s rubbish is only one part of the fiscal equation. Making recycling more cost-effective will also take increasing the city’s recycling rate. (For more details, see IBO’s More Recycling Needed to Help Lower City’s Trash Costs.)

When the Mayor and City Council adopted the city’s Solid Waste Management Plan in 2006, a key part of the plan was to reinvigorate New Yorkers’ recycling efforts. But the amount of paper, metal, glass, and plastic picked up curbside for recycling remains substantially below the city’s goals. And the amount of trash that’s recycled varies widely throughout the city.

The city aims to have 25 percent of the trash it picks up recyclable. In other words, by weight about 25 percent of the trash New Yorkers put out for collection should be separated in the appropriate recycling bins or bags. In fact, the share of recycling has only been about 16 percent since the solid waste plan was passed, which is actually lower than the 19.8 percent recycling rate in 2002. Granted the rate plummeted in 2003-2004 when the recycling program was cut back to just paper, and it took a while to get people back in the habit of recycling the other stuff. And with bottles increasingly being made from plastic and the size of newspapers shrinking (along with their readership), a weight-based goal has more hurdles. But reaching the 25 percent goal seems especially tough if you look at recycling rates at a borough or neighborhood level.

In fiscal year 2008, none of the boroughs had a recycling rate of 25 percent or more, and only 6 out of the city’s 59 sanitation districts had rates of 25 percent or above. Of the districts meeting or exceeding the recycling goal, five were in Manhattan. But some Manhattan neighborhoods were well under the goal. While neighborhoods such as the Upper West Side and Greenwich Village exceeded the goal, East Harlem and Central Harlem each recycled less than 10 percent of their curbside trash.

In the Bronx, where the overall 2008 recycling diversion rate was 10.8 percent, no district reached a 25 percent rate and 7 of the borough’s 12 districts recycled less than 10 percent of their trash. Among Brooklyn’ s 18 districts the recycling rate was 15.5 percent, and only the district comprising Park Slope, Carroll Gardens, and Red Hook exceeded 25 percent while two districts including Bedford-Stuyvesant and Brownsville recycled at rates below 10 percent. In Queens, where the boroughwide rate was 17.7 percent, and Staten Island, where it was 16.5 percent, no district met the 25 percent goal but no district was at or below 10 percent.

The statistics through the first six months of the current fiscal year look very similar. Only six districts are meeting or exceeding the 25 percent goal: the same six as last year, although the Brooklyn district’s rate has slipped a bit. With the cost of exporting the city’s regular rubbish expected to rise by $80 million over the next few years and reach $395 million in 2012, it may be fiscally prudent to pull the city’s recycling rates out of the trash bin.