Feb 11, 2015

In Fiscal Year (FY) 2016, New York collected $180 billion in state and local taxes—or $9,081 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average New York taxpayer can afford this level of taxation?

To better answer this question, this analysis will calculate New York’s Tax Burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.

Click here to view tax burden data by state, type of tax, and for years 1950 to 2016

Unfortunately for taxpayers, as shown in Chart 1, New York’s state and local tax burden (tax collections divided by private sector personal income) was the highest in the nation for FY 2016 at 22 percent—or 54 percent above the national average of 14.3 percent.

#NewYork state and local #taxburden in FY 2016 was the highest in the nation at 22%—54% above US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #NYpol #NYleg #NYsen #NYgov #PolicyData (click to tweet)

New York’s high state and local tax burden is driven by the fact that they have every tax imaginable and at very high tax rates. For instance, at the state level New York has the highest cigarette excise tax in the country ($4.35 per pack) and the eight highest top individual income tax rate in the country (8.82 percent). The income tax rate, however, is misleading because New York has an awful tax benefit recapture provision which eliminates the tax benefits of lower marginal tax rates for high income taxpayers.

As bad as the state level taxes are, it gets much worse when local taxes are factored in, especially in New York City:

• New York City levies an additional $1.50 per pack of cigarettes bringing the total state and local tax to $5.85. 

• New York City levies an additional 4.5 percent sales tax on top of the 4 percent state sales tax, plus the Metropolitan Commuter Transportation District Surcharge of 0.375 percent, bringing the total state and local tax to 8.875 percent—the 16th highest combined rate in the country. 

• New York City levies an additional 3.876 percent on the highest earners under the individual income tax bringing the total state (8.82 percent) and local tax to 12.696 percent. If New York City were a state that would be the second highest individual income tax rate in the country—behind California’s 13.3 percent tax rate.

• New York City levies an additional 8.85 percent on corporations bringing the total state and local tax rate to 15.35 percent. If New York City were a state that would the highest corporate income tax rate in the country.

• Adding insult to injury, New York City also levies a unique 4 percent tax on partnerships and proprietorships known as the Unincorporated Business Tax.

More troubling, as shown in Chart 2, New York’s tax burden has grown over time by a whopping 136 percent to 22 percent in FY 2016 from 9.3 percent in FY 1950.

#NewYork state and local #taxburden has grown 136% between FY 1950 (9.3%) to 2016 (22%) http://bit.ly/2FX9C8F @keypolicydata #NYpol #NYleg #NYsen #NYgov #PolicyData (click to tweet)

New York’s high cigarette tax rate is also a great example showing that “taxes matter.” As a consequence of the combined state and local cigarette tax, New York has become a haven for cigarette smuggling. A recent study on cigarette smuggling by the Mackinac Center and the Tax Foundation measures this negative economic impact and concludes:

“In 2016, New York State had the highest inbound smuggling rate at 57 percent. In other words, more than half of all the cigarettes consumed there were not properly taxed. Directly following New York is Arizona, Washington state (up from fourth place last year) New Mexico and Minnesota.”

“Many other states found themselves exporting cigarettes to their higher taxed neighbors. New Hampshire was the top export state, with 72 percent of the cigarettes sold there eventually wound up smuggled into other states. New Hampshire was followed by Idaho, Virginia, Delaware and West Virginia.”

Click here to view tax burden data by state, type of tax, and for years 1950 to 2016

Ironically, New York has significant capacity in oil and gas resources which, in other states, has been a path to tax riches. Alas, New York decided in 2010 to ban the new process of hydraulic fracturing into the oil and gas rich Marcellus Shale in the southern portion of the state. The economic and tax boom that would result in such drilling could be the answer to lowering New York’s nosebleed tax rates.

To put New York’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, New York’s 22 percent tax burden is greater than these combined industries: retail trade (5.4 percent), construction (5 percent), manufacturing (4.9 percent), wholesale trade (4.6 percent), and utilities (0.8 percent).

#NewYork state and local #taxburden > combined industries: retail, construction, manufacturing, wholesale, and utilities http://bit.ly/2FX9C8F @keypolicydata #NYpol #NYleg #NYsen #NYgov #PolicyData (click to tweet)

Of course, as shown in Chart 4, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every County in New York—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.

The 20 New York counties with the highest local government tax burden include:

• Hamilton County, NY (43.3 percent)
• Sullivan County, NY (20.5 percent)
• Essex County, NY (20.0 percent)
• Delaware County, NY (19.1 percent)
• Franklin County, NY (18.1 percent)
• Greene County, NY (16.9 percent)
• Allegany County, NY (16.7 percent)
• Cattaraugus County, NY (16.1 percent)
• Schoharie County, NY (16.0 percent)
• Ulster County, NY (16.0 percent)
• Jefferson County, NY (15.2 percent)
• Broome County, NY (14.8 percent)
• Seneca County, NY (14.7 percent)
• St. Lawrence County, NY (14.3 percent)
• Albany County, NY (14.2 percent)
• Warren County, NY (14.0 percent)
• Orange County, NY (13.6 percent)
• New York City, NY (13.5 percent, see note)
• Clinton County, NY (13.4 percent)
• Orleans County, NY (13.3 percent)

The 20 New York counties with the lowest local government tax burden include:

• Livingston County, NY (11.4 percent)
• Schuyler County, NY (11.4 percent)
• Chemung County, NY (11.1 percent)
• Wyoming County, NY (10.9 percent)
• Niagara County, NY (10.5 percent)
• Wayne County, NY (10.4 percent)
• Nassau County, NY (10.4 percent)
• Schenectady County, NY (10.2 percent)
• Tompkins County, NY (10.1 percent)
• Lewis County, NY (10.0 percent)
• Onondaga County, NY (10.0 percent)
• Rensselaer County, NY (9.8 percent)
• Erie County, NY (9.8 percent)
• Ontario County, NY (9.7 percent)
• Monroe County, NY (9.2 percent)
• Tioga County, NY (9.2 percent)
• Madison County, NY (9.2 percent)
• Westchester County, NY (8.2 percent)
• Saratoga County, NY (6.1 percent)

Note: New York City includes New York County (Manhattan) includes Bronx County (The Bronx), Kings County (Brooklyn), Richmond County (Staten Island), and Queens County (Queens)

Click here to view tax burden data by state, type of tax, and for years 1950 to 2016

Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?