When the Citizens Budget Commission issued a report in November that said New Yorkers pay the nation’s heaviest burden of state and local taxes, it was quickly cemented into the foundation of New York’s conventional political wisdom. As Daily News editorial page editor Richard Schwartz wrote, the study “elicited a collective howl from good-government groups, businesses and unions.”
It ran front-page in the Post and Sun, and on the front page of the Times metro section. The Daily News and Newsday also covered the story. It was news, for sure, because the study translated the tax burden into a gripping factoid: $141 out of every $1,000 a New Yorker earned in 2000 went to state and local taxes.
Having done tours of duty as a reporter in the Newsday City Hall bureau during the Koch and Giuliani administrations, I knew that reporters on such a busy beat don’t have the time to really look into the validity of such reports or even to take advantage of all the data there.
So I spent some time looking at the source documents for the report and found that its most explosive claim–that New York state residents pay the heaviest combined state and local taxes–was dubious. My suspicions were confirmed when a staffer commenting on behalf of the Citizens Budget Commission told me that strictly speaking, Maine residents pay higher taxes than New Yorkers.
Later, the president of the Citizens Budget Commission, Diana Fortuna, insisted the finding that New Yorkers are the most heavily taxed Americans was “absolutely correct.”
It may not matter much in dollars and cents whether New Yorkers or Maine residents are more brutally taxed, but in the world the Citizens Budget Commission seeks to influence, a sound bite such as “New Yorkers are the most heavily taxed Americans” is worth a great deal. It brought a gush of publicity to a report that set the agenda for a mid-November meeting of political, civic and business leaders–a gathering that in turn was intended to shape New York State’s balky budget process in the coming months. The statement that New Yorkers pay the most has since appeared in further news coverage of state budget issues.
For generations, the Citizens Budget Commission has been one of the first stops for journalists trying to understand budget hocus-pocus in New York. Although the commission is supported by business, which favors lower taxes, it is not considered ideology-bound. As one of the city’s longtime good-government groups, it has challenged the budgets of both Democrat and Republican politicians for decades.
Looking to find out more about the group’s November 10 report, called “Fixing New York State’s Fiscal Practices,” I went through a listing of the report’s sources on the Citizens Budget Commission web site, and spent a few days tracking down the documents on the internet and reading them.
The Citizens Budget Commission chart that listed New York as the nation’s biggest taxer came from the New York State Tax Sourcebook, which was issued last March by the state Department of Taxation and Finance. It compiled U.S. Department of Commerce data.
A check of the tax sourcebook revealed a problem with the way the Citizens Budget Commission had used it. In accompanying text, the book stated that while the data can be useful, it “does not show who actually pays taxes.” The budget panel had used it for just that purpose when it said New Yorkers paid the most.
The reason for the sourcebook’s caution is that its chart includes income tax paid by out-of-state residents, but doesn’t count their income when calculating the ratio of taxes paid for each $1,000 in income. In New York State, that income is big money, since so many wealthy executives commute to Wall Street from New Jersey and Connecticut suburbs. The sourcebook notes that 14 percent of the state’s personal income tax in 2000 was collected from nonresidents. That is about $3 billion.
The tax sourcebook says that the picture is further skewed because the chart reports taxes on residents’ capital gains but doesn’t factor in the associated income. For New York, home of the financial markets, capital gains are a big-ticket item. That was especially so for 2000, a Wall Street boom year in which $63 billion in capital gains comprised 12 percent of the adjusted gross income in New York State, according to a state comptroller’s report. Yet by using the data from the state book, the Citizens Budget Commission figures in effect charged the capital gains taxes to New Yorkers without accounting for the capital gains income itself.
As the sourcebook dryly puts it, “The tax-to-income ratio is biased in an upward direction because it includes tax but excludes the associated income. New York residents realize a substantial fraction of national capital gains. This means the upward bias in the tax-to-income ratio is even greater for New York.”
The Citizens Budget Commission repackaged the same information in its report, but downplayed the caveats. The report, having said the New York State income tax costs 50 percent above the U.S. average, did acknowledge that particular figure was “somewhat overstated” because the numbers excluded commuters’ income and residents’ capital gains. But the report doesn’t say whether this might affect the big-picture conclusion that New Yorkers pay the nation’s highest taxes.
I also spoke with Frank Mauro, executive director of the liberal Fiscal Policy Institute. He said he was convinced that once the numbers were adjusted for capital gains and out-of-state residents’ taxes, New Yorkers would not be No. 1 in tax burden. (He also pointed out another mistake in the report–a chart showing that New York City’s taxes are lower than those in the rest of the state. The commission has acknowledged that error.) “I think it’s terrible that they were so cavalier with the data, that they used data they didn’t understand,” Mauro says now.
While poring through the source material, I was also in touch with the Citzens Budget Commission. Seeking to speak with Executive Vice President Charles Brecher, who heads the commission’s research operations, I got a call back instead from Senior Research Associate Doug Offerman, who explained that Brecher wasn’t available and that he would speak in his place.
I asked Offerman if it was accurate to say that New York State residents paid the heaviest combined state and local tax burden. (Offerman hadn’t worked on the report, but told me he was sitting in his office with someone who had.) He responded, “The answer is: It depends. It depends on whether we are including capital gains and whether we are measuring personal income measured for places of residence. If you define personal income as being based on place of work, and you exclude capital gains…New York is the highest. But if you adjust for place of residence or if you adjust for capital gains, New York is second to Maine.”
We chatted lightly about that. Who would’ve thunk it? Maine?
But the Citizens Budget Commission now says the headline-making statement is not up for debate. A short article on the finding that I wrote for City Limits Weekly elicited a letter from Fortuna saying that the report’s conclusion about New Yorkers being the most heavily taxed Americans “is absolutely correct and will not be retracted.” She said the staff member I talked to “was not involved in the report and was not in a position to speak knowledgeably about it.”
Fortuna restated in a later phone conversation that New Yorkers’ combined state and local tax burden is the highest in the country. One of Fortuna’s three colleagues participating in the same call said it didn’t matter that the report’s data included out-of-state residents’ taxes and residents’ capital gains taxes but not the income being taxed, since the same applied to all the states. “We decided to use the best available measure,” the analyst said.
The tax-to-income ratio measure is widely used, and also appears in a recent report from the state comptroller. It shows which states are the biggest tax gluttons. But as the tax sourcebook and Offerman’s response showed, it’s a different thing to say which state’s residents pay the most. And a different headline.
The Citizens Budget Commission’s report did highlight some essential facts about New York State’s fiscal ills. Notably, local taxes in New York State are far and away the highest in the nation. That’s largely because Albany requires localities to pay Medicaid and other costs normally covered by states (a burden Gov. Pataki is now pledging to alleviate).
But the finding on New Yorkers’ overall tax burden will probably continue to be especially influential because it was so highly publicized–perhaps more so than the budget agency had expected. Offerman had said the staff had no idea the report would attract calls from around the country. “It was really quite a bombshell,” he said. “We were debating whether to release it at all, because it really was an orientation document for the conference. But it ended up being much more than that.”
Paul Moses, a former city editor at Newsday, teaches journalism at Brooklyn College/CUNY.