BILL NUMBER: S1439

SPONSOR: RIVERA
 
TITLE OF BILL:

An act to amend the tax law, in relation to imposing an additional tax
on income attributable to long-term capital gain

 
PURPOSE:

The purpose of this legislation is to amend the New York tax law to
introduce an additional tax on investment income (capital gains), for
the purposes of correcting the unfair federal tax benefit for income
earned from investing rather than working.

 
SUMMARY OF PROVISIONS:

Section 1 amends the tax law to add a new section 601-b to impose an
additional tax on low-taxed investment income.  Subdivision (a) of
section 1 states that an additional tax is imposed on low-taxed invest-
ments in addition to the tax imposed under section 601 of this article.

              

Subdivisions (b) of section 1 provides that low-taxed investment income
shall refer to the amount of a person's New York State taxable income
attributable to long-term capital gains, dividends, or other income
taxed under the preferential rates of section 1(h) of the internal
revenue code.  Subdivision (c) of section 1 outlines the tax levied and
annual income threshold as:

1. the additional tax only on the long-term capital gains of 7.5% for
those with an annual income over five hundred thousand and 15% for those
over one million for married individuals and the head of household.

2. the additional tax only on the long-term capital gains of 7.5% for
those with an annual income over four hundred thousand dollars and 15%
for those over eight hundred thousand dollars for individuals filing
single returns.

Adds provisions to ensure taxes are proportionally phased-in for incomes
exceeding five hundred thousand, and for those making over one million,
it will be proportionally phased-in at a fraction of 50%.  Subdivisions
(d) add that provisions for this section shall be administered and
penalties be imposed in the same manner as the tax imposed under section
601 of this article.  Subdivision (e) allows the Department of Tax and
Finance to adopt rules and regulations to implement this section.

Section 2 provides for the effective date.

 
JUSTIFICATION:

New York is one of the wealthiest states in the nation and boasts the
largest metropolitan economy in the world, according to Oxford
Economics(REF). Despite its wealth, New York is also the most unequal
state in the country. According to the Fiscal Policy Institute, in 2022,
ultra-rich New Yorkers worth over $30 million collectively own $6.7
trillion in wealth and are heavily undertaxed (REF). This is because our
tax system has not kept pace with economic changes.  Economic growth
from recent decades has overwhelmingly benefitted a small segment of
elites, while inflation-adjusted wages have stagnated for the vast
majority of working people since the 1970s.  The State government, lack-
ing adequate tax revenues, has been unable to afford essential public
investment and social spending, including upgrading our infrastructure,
repairing public housing, protecting public education, and financing
Medicaid.

Most people earn their income from working, while the wealthy, who
possess significant accumulated assets like stocks, bonds, and real
estate, rely heavily on capital gains. These profits, generated from
investments, are taxed at much lower rates than wage income, a policy
often justified as an incentive for investment. However, this tax struc-
ture disproportionately benefits the rich, contributing to income
inequality and depriving the government of crucial revenue.  For many
decades, the federal income tax has imposed a much lower tax rate on
capital gains than on wage income. Often rationalized as an incentive
for investment, it is one of the starkest examples of how federal tax
policy openly favors the rich. In addition to the manifest unfairness of
taxing investors less than workers, this tax handout deprives the feder-
al government of desperately needed revenue. Research shows a more equi-
table solution is to reform capital gains taxation by taxing capital as
they accrue as capital gains rather than wealth when they are realized
(REF). This approach would help reduce inequality without undermining
growth-enhancing entrepreneurial activity, making it an effective strat-
egy for addressing wealth disparities.

New York can take proactive measures to address regressive federal tax
policies. When the federal government grants benefits to the wealthy or
large corporations, New York should take steps to counterbalance them.
There is no need to artificially separate state and federal governance;
where the federal government forfeits tax revenues, New York can recover
them.

By imposing this additional tax on capital gains, New York can raise
significant additional revenue, reduce economic inequality, and bring us
closer to a fair and just tax system.

 
LEGISLATIVE HISTORY:

2021-2022: S2522 Rivera / A3352 Kim

2023-2024: S2162 Rivera / A 2576 Kim

 
STATE FISCAL IMPLICATIONS:

This bill is projected to raise 7 billion dollars annually in revenue.

 
EFFECTIVE DATE:
This bill is effective immediately.