“Because your time and money are worth nothing to us”

Posted by Marc Hodak on May 26, 2009 under Revealed preference, Stupid laws | Be the First to Comment

New York State, in an obvious attempt to see just how much it can piss off its taxpayers, has sent an extraordinary notice to all its citizens.  It warns them that not only will their tax rates be raised in 2009, but they will have to recalculate their 2008 taxes now based on the new 2009 tax rates in order to comply with the new law.  I know you think you just misread that last statement, so read it again, and rest assured that it is correct.

Here’s how it works.  Most income taxes need to be paid each quarter on an estimated basis; the state doesn’t want to wait until the end of the tax year to collect its loot.  The typical rule for estimated taxes is the lower of either (a) 90% of your actual tax bill that you’ll eventually have to pay or (b) 100% of your last year’s actual tax bill.  For most filers whose incomes are flat or growing, the easiest thing to do is to look at your tax bill for last year and just pay that in equal installments over the current tax year.  Simple enough.

This year, New York is saying that if you wish to use the second option to pay estimated taxes, i.e., 100% of last year’s taxes paid, you need to recalculate the amount you would have owed last year based on this year’s higher tax rates.

That’s right, the lovely time you recently spent calculating your New York taxes, you need to go through that again now using the new tax rates so that the state can squeeze that last $100 from you without having to wait until next April.  We really are talking about chickensh*t sums, here.  For the 60% of people who hire accountants to do their taxes, the vast majority of them would ending paying more for this recalculation than they would owe in additional estimated payments.

Why would the state do such a crazy thing?  Because the state’s politicians are desperate for those incremental dollars, and they truly don’t care if what it costs you to pay them the lawful amount.

Most debates on tax policy center on the elasticity of supply, i.e., the degree to which an increase in taxes will reduce the willingness of the person being taxed to continue engaging in the taxed behavior.  For example, if raising the sales tax causes people to buy less such that the actual tax raised is minimal, and businesses will otherwise suffer from the reduced sales, most policy makers would say that’s not an efficient tax.  In New York State, we now have proof positive that if a business has to pay someone doing no productive work $10,000 in order to get the state an extra $8,000, the politicians feel they are ahead.  Such abuse of New York State taxpayers is why we are seeing more of this.