In Fiscal Year (FY) 2013, New York collected $155.8 billion in state and local taxes. 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.
As shown in Chart 1, New York’s state and local tax burden (tax collections divided by personal income) was the third highest in the nation for FY 2013 at 14.6 percent—or 42 percent above the national average of 10.3 percent. More troubling, as shown in Chart 2, the tax burden has grown over time by a whopping 83 percent to 14.6 percent in FY 2013 from 8 percent in FY 1950.
Unlike Alaska or North Dakota, 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 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’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 measures this negative economic impact and concludes:
“The top states for inbound casual contraband smuggling were New York and Washington, while Vermont and New York had the highest rates of inbound commercial smuggling. New York ranks so high in both the casual and commercial smuggling because it has very high excise tax rates (state and city) and is located close to low-tax Virginia.”
Ironically, New York has significant capacity in oil and gas resources to emulate Alaska’s and North Dakota’s 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.
Of course, 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 New York counties with the highest local government tax burden include: Hamilton County, NY (18.5 percent), Sullivan County, NY (9.3 percent), and New York County, NY (9.1 percent). The New York counties with the lowest local government tax burden include: Jefferson County, NY (4.1 percent), Saratoga County, NY (4.9 percent), and Tioga County, NY (5 percent).
J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.