Fixing Our Upside-Down Tax System:Why We Need to Extend the Income Tax Surcharge

on the Wealthiest New Yorkers to Fund a Circuit Breaker for Struggling Property Tax Payers and

Renters

Ron DeutschOmnibus Consortium Coordinator

The Problem with Property Taxes

• Too many New Yorkers are paying too much in property taxes

• We have put too much pressure on the property tax

• We have enacted a solution that does not address the problem

Tax Cap is Wrong Solution

• Tax caps WILL NOT lower anyone’s taxes• Tax caps WILL NOT ensure that residents’ individual tax bills

won’t go up more than a small amount each year• Tax caps WILL NOT help anyone who can’t afford their

current property taxes• Tax caps WILL NOT change the main drivers behind higher

property taxes• Tax caps WILL NOT change the demand or need for local

services

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The root causes of the rising property taxes in New York.

• The responsibilities/mandates that New York State assigns to each of its several types of local governments.

• The amount of aid that the state provides to those local governments to help them cover the cost of those responsibilities.

• The revenues that those local governments are authorized to collect to pay for the share of those responsibilities that the state does not cover.

Property Taxes Don’t Exist in a Vacuum:

Reducing Top Income Tax Rates has resulted in increased pressure on the property tax and the greatest income inequality of any state in the country!

Temporary Top Rates for 2009 - 2011

Current Personal Income Tax Rate Structure - with temporary top rates (joint filers):– 4% on income under $16K– 4.5% on income between $16K and $22K– 5.25% on income between $22K and $26K– 5.9% on income between $26K and $40K– 6.85% on income between $40K and $300K– 7.85% on income between $300K and $500K– 8.97% on income over $500K

Unsustainable property taxes are now a middle class problem.

• Hundreds of thousands of NY residents now pay unsustainable percentages of their incomes in property tax on their home, as much as 30% and more.

New York has a Circuit Breaker . . . . .but its eligibility requirements and benefit levels are extremely limited

• New York’s Circuit Breaker was established in 1978

• But its parameters have not been updated since 1985:

– Household gross income cannot exceed $18,000.

– Market value of home cannot exceed $85,000.

– For renters, average monthly rent cannot exceed $450.

– The maximum annual credit is $375 for seniors and $75 for others.

How does a Circuit Breaker work?

• The taxpayer pays his full tax when due, then applies for the tax credit as part of state income tax return. • Credit will offset any state income tax due, but is also a "refundable credit", to be refunded in full even if there no income tax liability.

How does a Circuit Breaker work?• Schools and municipalities receive their full tax levy, and are not involved in the Circuit Breaker process. Administration of the Circuit Breaker is all handled confidentially through the homeowner’s state income tax return.

• There is no shifting of the tax burden to other local property owners

• The Circuit Breaker provides relief to those most overburdened, and it gives the most relief to those homeowners who are the most overburdened.

States with Circuit Breakers (2008)

Omnibus Circuit BreakerCalendar Year Household income Circuit Breaker would cover

property taxes over the following percentages of household income

The refundable credit would cover the following percentage of property taxes over the percentage limit:

2011 $100,000 or less 9% 70%

2012 $100,000 or less 8.5% 70%

2013 $100,000 or less$150,000 or less

7.5%8.5%

70%

2014 and beyond $100,000 or less$150,000 or less $250,000 or less

6%7%8.5%

70%

Examples of Benefit Calculations - First Year of Phase-In

• Automatic Calculator available at www.nyspropertytaxreform.org and www.omnibustaxsolution.org.

Household income = $50,000

Property taxes on home = $7,000

Threshold = $50,000 X 9% = $4,500

Property Taxes Over Threshold =

$7,000 - $4,500 = $2,500

Circuit Breaker Credit = 70% of $2,500 = $1,750

Examples of Benefit Calculations - Second Year of Phase-In

• During the second year, 2010, eligibility is still limited to those with household income of $100,000 or less, but the eligibility threshold drops from 9% to 8.5% of income.

Household income = $50,000

Property taxes on home = $7,000

Threshold = $50,000 X 8.5% = $4,250

Property Taxes Over Threshold =

$7,000 - $4,250 = $2,750

Circuit Breaker Credit = 70% of $2,750 = $1,925