New York’s tax revenues also show signs of resilience, consistent with these more optimistic economic forecasts. State tax revenues come from three main sources: 1) the personal income tax, 2) the corporate tax (and other taxes on businesses), and 3) sales taxes. Personal income tax receipts make up about 60 percent of the total tax revenue, business taxes make up about 23 percent of total tax revenue, and consumption taxes make up about 16 percent of total tax revenue. Each of these is important to the State’s tax base and each is impacted by the state of the New York economy.
The personal income tax, which makes up the largest component of tax revenue in the State, has two major components: wage income and non-wage income. Non-wage income includes bonuses, capital gains, and self-employment income. While wage income (mostly ordinary salaries) is closely correlated with the State’s labor market, non-wage income reflects business profits and investment gains, and therefore depends on both the state labor market as well as financial markets. Over recent years, about 30 percent of the State’s personal income tax revenue has come from non-wage income, which is attributable in large part to corporate bonuses and capital gains, and is heavily influenced by fluctuations in financial markets.
While 2020 saw an unprecedented decline in employment, the state’s labor market has largely recovered and has seen stable growth in total personal income. Total personal income offers a good approximation of the state’s tax base. Thus, from a fiscal perspective, the State’s tax base has maintained stable growth. Figure 1 below shows that personal income has grown consistently over the past 10 years and continues to grow in the post-Covid period.