How many New Yorkers pay state and local income tax?

In a secretly recorded video, Republican Presidential nominee Mitt Romney told a room of well-heeled donors that almost half of Americans see themselves as “victims” entitled to food and health care. “These are people who pay no income tax. Forty-seven percent of Americans pay no income tax,” said Romney in the video posted yesterday by Mother Jones.

The Republican nominee was talking about federal income tax. But the remarks delivered special sting for the many New Yorkers who do pay income taxes, just not federal ones. New York City and state both levy income taxes, and it is likely that some people pay them even when — thanks to tax credits and rebates — they owe nothing to Uncle Sam. And likewise, some people end up paying taxes in New York City even though they don’t owe anything to the state.

How many? According to the New York City Independent Budget Office, one-third of city filers who had income in 2009 did not pay any income tax to the city. These city residents either had incomes that were too low to have a tax liability, or they received tax credits that offset their income.

About 39 percent of city residents who filed tax returns did not pay income tax to the state, according to the state’s Office of Tax Policy Analysis.

New York, like many states, offers numerous deductions that reduce or eliminate tax liability, including deductions for dependents and childcare, as well as earned income tax credits. These help many lower-income households stay financially afloat. “A traditional goal of income tax systems is to shield subsistence income from taxation,” said Frank Mauro, executive director of the Fiscal Policy Institute.

For many New Yorkers who don’t pay state or city income taxes, that income is quite low. The bottom 30 percent of filers at the lowest end of the spectrum citywide only earned 2.8 percent of all income. In contrast, the city’s most affluent filers, the 10 percent who earned more than $105,400, earned 58.2 percent of all income reported on all returns. They paid 71.2 percent of the city’s income tax. Filers in the top 1 percent received just over a third of income reported on returns.

Of course, New Yorkers who do not pay income tax do pay other kinds of taxes. “Every time you buy something you’re paying sales tax. You can’t really avoid that one,” said Tammy Gamerman, Senior Research Associate at Citizens Budget Commission. “Even if you’re a renter, your landlord pays property tax on building and that translates somewhat into what your rent is.”

It is highly unusual for a city to have an income tax, Gamerman notes, adding that by incorporating the tax into its system, instead of relying only on property and sales levies, makes the city more progressive than other jurisdictions. “The most progressive tax we have is the personal income tax,” she said.

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