New York is one of a handful of states that would be hit with a net increase in federal taxes under Senator Obama's tax plan, according to a new study.
Thanks to New York City's heavy concentration of wealth, the Democratic candidate's proposal would end up raising taxes in New York State by a total of $3 billion in the first two years of an Obama administration, while most other states on average would see a lower federal tax bill, the study said.
In effect, the Empire State would be subsidizing the tax-break component of Mr. Obama's plan, which the candidate is gearing toward low- and middle-income Americans.
New York Would Suffer Under Obama Tax Plan
The report, to be released today by the conservative-leaning Manhattan Institute think tank, also says Mr. Obama's proposed tax hikes would place state finances under a greater strain at a time when New York is saddled with a $5.4 billion deficit next fiscal year.
Relying on a statistical model used by a U.S. Treasury Department analysis, the think tank calculated that the higher federal rates would encourage wealthy taxpayers to shelter more of their taxable income, draining between $800 million and $1 billion from state coffers in 2009 and 2010.
"When rates rise sharply, taxpayers respond by working and earning less, and by choosing from a wide variety of legal strategies for shifting or sheltering income in tax-exempt investment," the report said.
Mr. Obama's federal tax proposal comes as Governor Paterson and Mayor Bloomberg are considering raising state and local taxes as a last-resort measure to cope with deficits that may expand further in the wake of the Wall Street crisis.
"This would create an even stronger incentive for taxpayers to minimize their taxable incomes, feeding the cycle of both fiscal and economic decline," the study said.