Empire Center analysis disputes millionaire savings narrative
Economic Facts Under Scrutiny
According to analysis from the Empire Center for Public Policy, Mayor Mamdani made an inaccurate claim during testimony before state lawmakers regarding the financial situation of New York’s wealthiest residents. The mayor had stated that New York millionaires received a $12 billion annual windfall from federal tax changes, specifically citing analysis from the Fiscal Policy Institute.
However, detailed examination of Internal Revenue Service data reveals that New York’s millionaires are actually paying higher average federal tax rates now than they did before federal tax changes were implemented. The net effect of recent federal tax policy changes has resulted in higher overall tax burdens for the state’s highest earners, not lower ones.
The SALT Cap Impact
The analysis points to the federal State and Local Tax deduction cap, known as SALT, as the critical factor explaining why federal tax cuts have not benefited New York’s highest earners as the mayor suggested. Prior to 2017, most federal taxpayers could fully deduct what they paid in state and local taxes. For residents of New York and other high-tax states, this constituted a substantial discount on federal taxes owed.
However, when Congress enacted the Tax Cuts and Jobs Act in 2017, it coupled lower tax rates with a limit on SALT deductibility. The deduction was capped at $5,000 for individuals and $10,000 for married couples filing jointly. This change wiped out most of the federal tax discount that high-income New Yorkers previously enjoyed.
The Real Numbers
IRS data demonstrates that for millionaires nationwide, the average share of income paid in federal taxes dropped from 27.9 percent in 2017 to 26.8 percent in 2018. However, for New York’s millionaires, the situation was reversed. Their average federal tax burden increased from 27.8 percent to 28.1 percent. This represents a directionally opposite outcome from what the mayor cited.
In 2022, the most recent year for which complete IRS data is available, New York millionaires paid almost $2 billion more in federal taxes than they would have paid at the 2017 effective rate. This amounts to an average of almost $30,000 per filer. By contrast, millionaires nationally paid $21 billion less in 2022 than they would have paid at 2017 rates.
Workaround Limitations
In 2021, state lawmakers attempted to mitigate SALT cap effects by establishing a pass-through entity tax. This workaround reclassified a portion of state tax liability as business tax, which could be fully deducted federally, rather than state income tax subject to the cap. However, this approach is not feasible for all filers and does not apply to most capital gains income.
Last summer’s federal budget legislation temporarily raised the SALT cap to $20,000 for individuals and $40,000 for married couples through 2029. That change will produce some savings for New York filers. However, the analysis suggests savings will likely prove insufficient to produce net aggregate gains for the state’s millionaires compared to pre-2017 tax code rates.
Strategic Implications for Mayoral Arguments
The Empire Center analysis suggests that while the Fiscal Policy Institute identified certain mechanisms through which federal tax cuts produce some benefits for wealthy New Yorkers, the complete picture is more complex and less favorable than the mayor’s testimony suggested. As Mayor Mamdani argues for increasing tax burdens on high-income residents, the analysis suggests accuracy and completeness in presenting the current tax situation is important.
The center notes that New York already has the highest combined state and local income tax rates in the nation. High-income residents face particularly steep costs for living and working in New York. Understanding the complete tax picture is essential for informed policy discussion. Read more at Empire Center for Public Policy, Fiscal Policy Institute, and IRS Statistics.
