(Bloomberg) -- The richest New York City residents could soon face the highest combined state and city tax rates in the U.S.
Governor Andrew Cuomo and state lawmakers have reached a tentative agreement to raise taxes on the wealthiest New Yorkers as part of a roughly $200 billion budget deal expected to be announced as early as Monday, according to a person familiar with the negotiations.
If approved, state income-tax rates would temporarily increase to 9.65% from 8.82% for single filers earning more than $1 million, according to the person, who wasn't authorized to speak publicly because a final budget hasn't been reached.
New York City residents with income over that threshold would pay between 13.5% and 14.8%. That compares with 13.3% on income over $1 million in California, currently the highest in the nation, according to the Tax Foundation.
Lawmakers were nearing a budget agreement that would increase corporate and income taxes by $4.3 billion a year with additional revenue going to fund aid for schools, undocumented immigrants and small businesses, the Wall Street Journal reported Sunday, citing unnamed sources. The Cuomo administration and legislative leaders didn't immediately respond to requests for comment.
They are the latest officials to target the wealthy in the wake of the economic devastation wrought by the Covid-19 crisis. That's raised concerns that higher taxes could drive wealthy residents to places where they don't have to pay as much -- such as Texas or Florida -- threatening city and state budgets.
The pandemic has already seen a temporary migration of Americans out of New York, San Francisco and other big cities into second homes elsewhere. Cuomo himself has warned that higher taxes on the wealthy could discourage them from returning to the state after the pandemic is over.
Tax Brackets
The New York agreement would create two new tax brackets. Under the proposed plan, income between $5 million and $25 million would be taxed at 10.3% and income over $25 million would be taxed at 10.9%. The new rates would expire in 2027 under the proposed plan.
Taxes have been one of the largest points of contention between the governor and the legislature. In his January budget proposal, Cuomo called for a $1.5 billion income tax increase. But that was before the state knew how much money it would receive from a federal aid package. New York will receive only $12.6 billion of the $15 billion in federal aid it sought, leaving a hole of nearly $2.5 billion, budget director Robert Mujica said last week.
Leaders of the Senate and Assembly each discussed raising nearly $7 billion of revenue, which included proposals to increase income, estate and corporate taxes. The proposals include a 1% surcharge on capital gains income, a pied-a-terre levy and lifting the estate tax.
Business leaders have lobbied the Cuomo administration and state lawmakers to resist raising taxes, arguing tax increases now would drive high earners out of the state -- and especially New York City -- while the economy struggles to recover from the pandemic.
The proposed deal includes $500 million in property tax relief intended for about 1.3 million New Yorkers who earn less than $250,000 a year, the person said.
The agreement leaves in place prior middle-class tax cuts enacted in 2016, the person said. The personal income tax rate is set to drop in the 2021 tax year to 5.97% from 6.09% for individuals earning between $40,000 and $150,000 a year, and to 6.33% from 6.41% for people earning $150,000 to $300,000 a year.
If a state budget isn't adopted on Monday, or there isn't an emergency appropriation passed, the paychecks of thousands of state workers, including health care and correctional facilities employees, could be delayed, New York State Comptroller Thomas DiNapoli said Friday.
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