By Walter Pryce
This is an opinion column. It responds to a commentary published by the Tax Foundation, a nonpartisan tax policy research organization based in Washington. The research findings and quoted views are the Tax Foundation’s; the conclusions about New York are the author’s.
Every few years, someone in Albany argues that the state’s highest earners can always pay a little more. A new research summary from the Tax Foundation is a useful reminder that the answer depends on where the rate already stands, and New York’s already stands high.
In an Oct. 30 post, Tax Foundation economist Alex Durante walks through a new paper by economists Rachel Moore, Brandon Pecoraro and David Splinter on the “revenue-maximizing” top income tax rate, the point past which higher rates bring in less money, not more, because people work, invest, report and plan differently. His opening line sums up the idea: “Not all tax hikes bring in more revenue.”
What the new research found
Earlier estimates put that ceiling, counting all levels of government, somewhere between 48% and 73%. The best-known figure, 73%, comes from a 2011 paper by Peter Diamond and Emmanuel Saez. According to Durante, the new paper finds a ceiling of about 55% when income is treated as a single broad base, and about 48% once it accounts for the separate ways wages, business income and capital gains are taxed.
The more striking finding is what happens when federal, state and local revenue are counted together. The paper estimates that the top federal rate that maximizes total revenue is about 39%, barely above today’s 37%. Raising the federal rate to that level would gain only about $1 billion, the summary says, because losses to state and local treasuries would almost fully offset the federal gain.
Durante notes that the 48% figure is “not much higher than the combined federal and state income tax rates faced by high-income taxpayers in states such as New York and California.” He concludes that “policymakers should keep this in mind when thinking about increasing tax rates on high-income taxpayers without making other reforms to the tax code.”
Where New York already sits
New York’s top rates are 9.65% on taxable income above about $1.08 million for single filers, 10.3% above $5 million and 10.9% above $25 million, according to the state Department of Taxation and Finance. Those brackets were raised in 2021 and were due to expire after 2027. The budget enacted last year extended them through 2032.
The state comptroller’s office says only California and Hawaii have a higher top state rate. Stack 10.9% on the 37% federal rate and the simple statutory total is just under 48%, the very ceiling the new paper describes, before Medicare taxes or any local tax. Buffalo levies no city income tax, but New York City’s top earners face a combined state and city rate of 14.87%, the highest in the nation, the comptroller reported.
At the federal level, the 37% rate itself is now settled. President Trump signed the One Big Beautiful Bill Act on July 4, 2025, making that rate permanent instead of letting it rise when the 2017 tax cuts expired. The law also raised the cap on the state and local tax deduction to $40,000 for 2025, a change many New York households had sought for years, though the higher cap phases down for incomes above $500,000. That gives Albany a fixed federal backdrop, and it means any further change in what New York’s top earners pay is largely a decision made in Albany.
A narrow base carries a lot of weight
The concentration of New York’s income tax is what makes the ceiling matter here. State tax data for 2024 show that 99,404 filers reporting $1 million or more, 0.9% of all filers, paid 44.6% of the $71.9 billion personal income tax liability. The same data show the bottom half of filers paid 0.2%.
A tax base that narrow works well when the top is growing and hurts when it is not. Albany is in the first situation this fall. Comptroller Thomas DiNapoli reported Oct. 16 that state tax receipts through September ran $7.3 billion above projections, including $2.5 billion more in personal income tax. As the Chronicle reported, the Division of the Budget’s midyear update now projects a $9 billion surplus.
The other side of the argument
Supporters of the higher rates have numbers too. The left-leaning Fiscal Policy Institute, citing the Division of the Budget, says the 2021 increases raise about $3.6 billion a year, and its analysis of recent tax data found no notable rise in out-migration among high earners. State data also show the number of millionaire filers rising from about 86,700 in 2023 to 99,404 in 2024. Those are fair points, and they suggest New York has not yet tipped past the ceiling.
But “not past the ceiling” is a low bar for a state that is already near it. The comptroller’s office warned when the extension was proposed that the money would go to maintaining existing spending, not to new or better services.
What it means for Western New York
Western New York does not have many $25 million earners, but it competes for the people and businesses that create jobs, often against Pennsylvania, whose flat income tax rate is 3.07%. A region still working to grow its population has every reason to care whether the next budget leans again on the top bracket.
The lesson of the new research is not that taxes can never rise. It is that New York has little room left at the top, and that the next dollar is more likely to come from a growing economy than from another bracket. With a surplus in hand, the governor and Legislature can plan for the 2032 expiration now, and Western New York’s delegation should ask that any new revenue idea come with an honest estimate of what it would actually raise.
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