June 2003. The net result? A substantial net reduction in the income tax liability of affected taxpayers. Data analysis >>
In adopting the 2003-2004 state budget, the New York State Legislature was able to greatly reduce the local property and sales tax increases and the service cuts that would have occurred if Governor Pataki’s budget had been adopted as submitted. To a significant degree, this local tax relief was made possible by the Legislature’s adoption of temporary increases in the state income tax for the 2003, 2004 and 2005 calendar years.
A new top rate of 7.7% was put into place for each of these three tax years for taxpayers with taxable incomes above $500,000. A lower temporary rate (7.5% for 2003, 7.375% for 2004 and 7.25% for 2005) was put into place for married couples with taxable incomes between $150,000 and $500,000 and for individuals with taxable incomes between $100,000 and $500,000. The new 7.7% top rate, which only applies to taxpayers with taxable incomes above $500,000, is just about half the top state rate (15.375%) that was in place in the early and mid-1970s. Because state and local income taxes paid be deducted when calculating federal income tax liability, the net impact on the affected taxpayers is much less than the revenue raised by the state.
In addition, the federal tax cuts enacted in both 2001 and 2003 are particularly generous for taxpayers in these income ranges. The net result is that the combined impact of the federal, state and New York City income tax changes is a substantial net reduction in the income tax liability of affected taxpayers. Without even taking the President’s cut in dividend taxes into consideration, for example, the net annual tax cut for New York families earning $1 million is over $31,000 for those who live outside New York City and about $25,000 for those living in the city.