Tag Archives: New Jersey

New York ruling changes tax law. Get ready for a marginal tax rate of 288%.

New York has decided that owners of property living in another state may still have to pay income taxes in New York. The Wall Street Journal reports:

Connecticut and New Jersey residents with a Hamptons summer cottage or a Manhattan pied-a-terre are about to get a nasty surprise: New York state wants more taxes from them.

A New York court ruled last month that all income earned by a New Canaan, Conn., couple is subject to New York state taxes because they own a summer home on Long Island they used only a few times a year. They have been hit with an additional tax bill of $1.06 million.

Tax experts and real estate brokers say this ruling could boost the tax bill for thousands of business executives who own New York City apartments they use only occasionally. It could also hurt sales in the Hamptons and New York’s other vacation-home communities.

I want to focus on this line:

Under the ruling, if an owner doesn’t spend a single a day in a home it could still count toward a permanent residence.

If every state applied this ruling and federal court does not overturn it, a person could in theory own housing property in every single state and thus owe income tax in every single state and the District of Columbia. By my rough calculation using the top marginal federal income tax rate of 35% and the sum of all the top marginal state income tax rates, a person could theoretically be taxed at a rate of 288%. (Yes, I recognize it is absurd for somebody to have property in all 50 states and DC, but the whole notion of paying income taxes in every state you own property is equally absurd.)

I urge the federal courts to overturn this ruling. A permanent residence should be and must be the state in which the person lives the most. Income should only be taxed by states once, either by residency or by where it is earned. Not both and certainly not in a state where a person is neither a resident nor an income earner.

Isn’t this why we have the interstate commerce clause in the first place? To stop states from conducting commercial and financial warfare against other states or residents of other states?

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Government says it’s OK to break social security agreement, but not pension agreements.

Barack Obama’s debt commission proposed several changes to Social Security to help reduce the deficit. The New York Times reports:

The plan would reduce cost-of-living increases for all federal programs, including Social Security. It would reduce projected Social Security benefits to most retirees in later decades, though low-income people would get higher benefits. The retirement age for full benefits would be slowly raised to 69 from 67 by 2075, with a “hardship exemption” for people who physically cannot work past 62. And higher levels of income would be subject to payroll taxes.

I have no idea how much these measures will contribute to reducing the deficit or paying off the debt. My complaint is more ideological.

When employees contribute to social security, they are doing so with the understanding that they will receive certain benefits starting at a certain date. Currently, an American expects to pay a certain amount each year into the system, retire at age 67. and receive cost of living adjustments (COLA) each year. The proposals by the debt commission would violate this agreement, forcing people to pay more each year if they earn over a certain amount, retire at a later date than originally agreed to, and receive less in benefits than promised as the COLA is reduced. In effect, the government is unilaterally canceling its contract with each American and replacing it with a less attractive one.

In reality, I am not opposed to these changes, especially the retirement age which will not fully take effect for 65 years, thus having little effect on anybody working today. The reduction in COLA would have a much greater effect on everybody starting in the near future while the removal of the cap on social security taxes would have an even larger effect, but only the wealthy. But while these are necessary changes, contrast this with the government’s stance on pension funds.

In a Q&A titled The pension time bomb, The Week asks:

Can benefits be scaled back?

Only for future employees. New Jersey Gov. Chris Christie recently signed legislation reducing pension benefits for new state employees. In California this month, voters in nine municipalities approved ballot measures to limit benefits for future public employees. And governments are starting to take a harder line in collective bargaining with public unions. “I’ve seen a sea change in the local collective bargaining process,” said Dwight Stenbakken, deputy executive director of the League of California Cities. Some analysts recommend following the lead of Georgia, which requires that prior to being enacted, any changes to retiree benefits be studied for long-term impacts. According to the Pew Center on the States, the policy has helped Georgia avoid “costly and irreversible” mistakes.

These pension liabilities have already been promised to employees and retirees. The government has a contractual obligation to pay the pensions as promised.

So why are the pension obligations sacrosanct while money can be taken from Social Security beneficiaries? Social security is just as much a contractual obligation as public union pensions. If social security benefits are to be reduced for those who have already paid in, public union pension benefits should be as well.

* Though I have not yet read this (too busy writing my next book), Robert Graham discusses this topic in much more detail in his Job Killers: The American Dream in Reverse. How Labor Unions are Destroying American Jobs and the Economy. If you’ve read it, leave a comment here or send me an email, tweet, or facebook message letting me know what you think of it.