Saturday, March 26, 2011

Top Earners Saw 4 Times Average Income Drop During Recession: States' Over Reliance On Taxing High Income Earners Created State Tax Revenue Shortfalls And Deficits During Recession

From The Wall Street Journal, "The Price of Taxing the Rich: The top 1% of earners fill the coffers of states like California and New York during a boom—and leave them starved for revenue in a bust." by Robert Frank:
In New York before the recession, the top 1% of earners, who made more than $580,000 a year, paid 41% of the state's income taxes in 2007, up from 25% in 1994, according to state tax data. The top 1% of taxpayers paid 40% or more of state income taxes in New Jersey and Connecticut. In Illinois, which has a flat income-tax rate of 5%, the top 15% paid more than half the state's income taxes.
As they've grown, the incomes of the wealthy have become more unstable. Between 2007 and 2008, the incomes of the top-earning 1% fell 16%, compared to a decline of 4% for U.S. earners as a whole, according to the IRS. Because today's highest salaries are usually linked to financial markets—through stock-based pay or investments—they are more prone to sudden shocks.

The income swings have created more extreme booms and busts for state governments. In New York, the top 1% of taxpayers contribute more to the state's year-to-year tax swings than all the other taxpayers combined, according to a study by the Rockefeller Institute of Government. In its January report downgrading New Jersey's credit rating, Standard & Poor's stated that New Jersey's wealth "translates into a high ability to pay taxes but might also contribute to potential revenue volatility."

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