Date: Thu, 21 May 2009 00:23:39 -0400 (EDT)
From: Mitch Golden
Subject: NYS tax "increase"

You may have heard the whole flap started by Rush Limbaugh about the changes
to the NYS tax law, and his bitter complaint that they had increased the top
tax bracket by 30%.  Rush said he would move out of the state rather than
pay, and Patterson replied with something along the lines that this result
was a feature, not a bug.

I didn't pay much attention to the details, until tonight when I came home
to find a note from the state tax dept that indicates that I may have to
change my estimated tax payment.

So I looked it up.  The NYS tax code is so baroque that I wonder if they
even know what they did.

Here's how it worked in 2008:

If you made over 150k, you paid a flat 6.85% of your taxable income.  The
people actually got shafted were those who made between 100 and 150k,
because they had this weird system where between $100k and $150k, you go
from the top of the bracket part (i.e. where your first dollar is taxed at a
lower rate) to the flat part, where every dollar is taxed at 6.85%. That
means that the highest marginal tax bracket was actually between 100k and
150k, but of course they made it sufficiently complex that most people in
that range probably didn't realize what was going on.  (Actually, by my
read, there was an actual *discontinuity* in the tax at exactly $100k. That
is, you paid a noticably greater amount of tax if your taxable income was
$100,000.01 than if it was $100,000.00 - an infinite marginal tax rate!)

(See here:
http://www.tax.state.ny.us/pdf/2008/inc/nys_tax_computation_150_201.pdf )

Here's 2009:

What they did is to make the 6.85% tax bracket run only to 300k (for married
filing jointly) and have a 7.85% bracket from 300k to 500k, and then 8.97%
of everything over 500k.

(See http://www.nystax.gov/pdf/2009/inc/it2105i_409.pdf page 8)

But the interesting thing is that *they did away with the stupid tax bump
from 100k to 150k*.

So, questions:

Q1: What is your tax cut if you make between $150k and $300k?  (The best
case.)
A1: Subtract the 2008 amount from the 2009 amount.

  delta = 1946+0.0685*(x-40000) - 0.0685x

  delta = -794 (x cancels out)

Everyone between $150 and $300k got a $794 tax cut, between $100k an $150k
they got an amount ranging up to $794.

Q2: What did your taxable income have to be to get a tax increase?
A2: Find the value at which the taxes are the same.  It is in the
300k-500k bracket:

  0.0685x = 19756+0.0785(x-300000)

        x = 379400

Q2: How much more tax do you pay if your income was $1M? $2M?
A2: Subtract the 2008 amount from the 2009 amount.

   delta = 35456 + 0.0897(x-500000) - 0.0685x
         = 0.0212x - 9394

   delta = 11806 if x = 1000000
   delta = 33006 if x = 2000000

Just a 1.2% increase in your average tax rate for a person with a taxable
income of $1M.  (Another way to say it is you were paying $68500 in taxes in
2008, now you'll pay $79806.)

More important perhaps is that they seem to have disallowed many if not all
tax deductions for people over $1M in income.  Obviously this is a tax
increase as well, but I don't know what sorts of things NYS allowed to begin
with.  At any rate it only hits people over $1M.

Very big Q1:  What am I missing here?  Is this a tax increase at all? Are
there really so many people making more than $380k that it outweighs the tax
cut they gave everyone from $100k to $380k?

Very big Q2: Does the legislature realize this?

Very big Q3: Why didn't this get discussed more in the press?

  - Mitch