New York Would Suffer Under Obama Tax Plan

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.

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.

A spokesman for the Obama campaign dismissed the report as right-wing propaganda. "A right-wing think-tank issuing a press release devoid of facts cannot obscure the fact that when it comes to who will be a better steward of the economy, John McCain says the current economy is strong and his own adviser said she doesn't think he's prepared to run a business," the campaign official, Blake Zeff, said in a statement.

Some recent polls show that Mr. Obama is maintaining a safe lead over the Republican presidential nominee, Senator McCain, among New York voters, though a Siena College poll that came out this week found that the Democrat's advantage has shrunk to 5 percentage points.

Obama campaign officials say the Siena poll result is an aberration and say the McCain camp's lack of a serious campaign operation in New York suggests that the Republican side has written off its chances in the Democratic-leaning state.

Mr. Obama has said he would raise the top two income tax credits to 36% and 39.6%, from 33% and 35%, and would increase the capital gains and dividends rates for people in the highest brackets to 20% from the current maximum rate of 15%.

The higher rates would finance a hodgepodge of new and expanded tax credits primarily benefiting middle-class Americans, including a "Making Work Pay" credit of up to $500 a person that would provide an estimated 150 million people with relief.

Mr. McCain would preserve President Bush's tax cuts, double the dependent exemption for married couples to $7,000 a dependent, and extend and enlarge the temporary increase in the Alternative Minimum Tax exemption.

Mr. Obama would pay for the tax credits by raising taxes on individuals with incomes of more than $200,000 or more and households earning more than $250,000.

New York would shoulder a disproportionate share of the cost of Mr. Obama's plan because the state has second-largest share of filers earning more than $200,000, according to the study.

In 2006, New York, which has about 6.3% of the national population, was home to 10.5% of taxpayers with adjusted gross incomes of more than $200,000. The average income of those earners was also the highest in the nation.

The study calculated that Mr. Obama's tax plan would direct $13 billion in credits and subsidies to New York residents but would raise the taxes of the state's highest earners by $16 billion, a net difference of $3 billion over a two-year period.

The figure assumes that the candidate would implement his tax hikes immediately. In recent comments, Mr. Obama has suggested that the Wall Street turmoil may lead him to delay the increases until the market stabilizes.

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.