NYC-WTC_000195490

NYC 9/11 Public Portal Document

nts In 1985, New York State enacted a tax cut to be phased in over three years. Standard deductions and ive personal exemptions were raised, marginal tax rates were reduced, the real property tax credit was increased and a new benefit for married taxpayers called the “family adjustment” was introduced. Only changes to the standard deductions and the personal exemption flowed through to City tax liability. The standard deduction i became a flat amount instead of being calculated as a share of adjusted gross income. It was to increase from $2,500 in 1985 to $2,800 in 1987 for single taxpayers and from $2,750 in 1985 to $3,800 in 1987 for married couples and head pf household filers. The personal exemption was to increase from $800 to $900. The final year of this program, 1987, was superseded by subsequent tax reform legislation.

The Tax Reform Act of 1986 substantially altered the Federal personal income tax code. The definition of i gross income, the deductions and exemptions allowed in the computation of taxable income, and the rates applied to such income were altered. Because State law conforms to Federal definitions of income and deductions, the; State tax base was significantly broadened.; In response, Ney/ York State altered its tax code in April 1987. The State legislation phased in a tax cut and ^restructuring of die tax over five years beginning in tax year 1987. / By /1

to Both the Federal and State changes significantly altered the definition of City taxable income. Since the City’s personal income tax base was broadened, the City would have received a “windfall” if it had taken no action. The New York City Tax Reduction Act of 1987 was enacted to return this windfall to taxpayers and reducci income taxes for fiscal year 1988 by an additional $75 million. The City’s five-year tax cut plan was designed to conform to State actions and combined new rate schedules and a low-income credit with the modified definition of taxable income. In 1987 the City introduced new rate schedules for single taxpayers, joint filers, and heads of households. Each schedule had six brackets rather than the 14 used in 1986. At the same time the top rate was reduced to 4.1 percent. By 1991 the legislation would have reduced the top rate to 3.4 percent and the number of tax brackets to four. A 0.5 percent credit for net capital gains income and a two-eamer married couple deduction were transitional measures only in effect during tax year 1987.

The most significant changes to the law were large increases in the standard deduction and the Introduction of a household credit to replace the low-income exclusion. For a joint filer with two dependerits, these changes raised the threshold below which no tax is due from $11,000 in calendar year 1986 to $14,025 in 1987, $15,550 in 1988, and $16,046 in 1989 and 1990. Imposition of the 14 percent increase in 1991 lowered thje threshold to $15,484 from 1991 to 1994. The taxable threshold increased again in 1995 to $16,691 and in 1996 to $17,499, as a result of increases in the standard deduction. An increase in the base (I rates in 1997 lowered the threshold to $15,001 from 1997 to 1998. The taxable threshold grew to $16,164 in 1999 as a'fesult of the STAR program. The taxable threshold grew to $17,831 in 2000, the result of the full- > year impact of the StAR program. In ^001, the taxable threshold grew to $19,999, the result of the last year of the STAR tax cut, the cut in the 14 percent surcharge and the increase in the joint filer standard deduction.

Finally, progressivity was also enhanced by placing limitations on the amount of itemized deductions allowable for New York purposes. For single filers with New York adjusted gross income over $100,000 and joint filers with New York adjusted gross income over $200,000, itemized deductions were reduced up to 20 percent in 1988 and up to 50 percent beginning in tax year 1989.

As part of New York State’s budget for fiscal year 1990-91 the last two years of the five-year tax reduction program were postponed. The legislation retained the 1989 tax rate schedule, standard deductions and the household credit for 1990. The scheduled phase-in of tax rates and deductions was to be completed by 1994. In order to avoid distortions in tax burdens which would result from coupling the City’s 1990 rate r BS schedule with the State’s 1989 deductions, the City also retained its 1989 rate schedule for tax year 1990.

r Changes to the City rate schedules were made for tax years 1991 through 1994 in proportion to changes the

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NYC-WTC_000195546