NEW YORK (Reuters) - New York's millionaires will pay higher taxes while 4.4 million middle-class and upper-income New Yorkers will get tax cuts, under a reform plan the governor and legislature unveiled on Tuesday.
The new top income tax rate for those who earn more than $2 million will rise to 8.82 percent. Without the agreement, this rate would have fallen to 6.85 percent from the current top rate of 8.97 percent because a surcharge expires this year.
The pact, which still must be approved by both houses of the legislature, cuts the current rate for those who earn $40,000 to $150,000 a year to 6.45 percent from 6.85 percent.
Governor Andrew Cuomo, a Democrat, had repeatedly vowed not to raise taxes despite the state's looming budget gaps.
Due to the surcharge, the highest tax rate will fall but the middle-class will be paying the lowest rate in 58 years. The governor's ability to forge a consensus contrasts with the federal government's impasse on revising income tax rates.
"Our state government has come together in a bipartisan manner to create jobs, grow our economy and, at the same time, enact a fair tax plan that cuts taxes for the middle class," Cuomo said in a statement.
Those who earn $150,000 to $300,000 will pay a 6.65 percent,
rate down from 6.85 percent. Those whose yearly incomes run from $300,000 to $2 million will all pay 6.85 percent, down from the current range of 7.85 percent to 8.97 percent.
The new tax brackets will only raise $1.9 billion, not enough to close both the $350 million hole in the current budget and the $3.5 billion deficit next year. This could set the stage for more harsh budget cuts.
New York state relies heavily on income taxes for its revenue, partly because Wall Street is the bedrock of its economy and its bankers and brokers are highly paid.
Middle-class taxpayers are expected to save a total of $690 million. Millionaires can look forward to the expiration of the new top rate on December 31, 2014. The temporary top rate is about half of the more than 15 percent rate the wealthy paid in the 1970s, according to the Fiscal Policy Institute.
The new brackets will rise with inflation.
The accord between Cuomo, Assembly Speaker Silver, a Democrat, and Majority Leader Dean Skelos, a Republican, would create a new public-private infrastructure fund to raise up to $1 billion from pensions and private investors. New York City would get $300 million for infrastructure projects from the Port Authority of New York and New Jersey. The state would advance $700 million to shift capital projects to next year from 2013 to help create jobs and boost the economy.
The new fund is expected to leverage $10 billion in direct capital investments to rebuild roads, bridges, parks, dams and flood control projects. It also would pay for upgraded water systems and educational facilities, and for making commercial and residential buildings use energy more efficiently.
The leaders pledged to pursue a "comprehensive gaming plan," which could open the door to legalizing casinos.
A payroll tax that helps fund the Metropolitan Transportation Authority, which runs New York City's buses, subways and commuter rail roads, would be abolished or cut for 294,000 taxpayers. The self-employment exemption would be raised to abolish the payroll tax for 415,000 more taxpayers. Public and private schools would become exempt. The state would make up the $250 million of revenue the MTA would lose.
A program to help inner-city youth, whose unemployment rate can run as high as 40 percent, would give clean energy, healthcare, advanced manufacturing and conservation business a tax credit for hiring unemployed youths. Some $37 million of funding would be spent on training, placements and the like.
(Reporting by Joan Gralla; Editing by James Dalgleish)