'Fiscal cliff' would hit Hudson Valley hard, but not all top earners
VideosGOP Rep: Taxes are going up Boehner: Obama not meeting promises on 'cliff' Fiscal cliff talks appear to be stalled
GalleriesCartoonists visit the 'fiscal cliff'
The Poughkeepsie, Newburgh and Middletown area would take one of the hardest hits in the nation if negotiations in Washington on the so-called "fiscal cliff" fail, according to a new analysis, but experts said a quirk built into the tax code likely would soften the blow for some of the Hudson Valley's top earners.
A new report from the Washington-based Tax Foundation estimated that a four-person household in the Poughkeepsie region with a median income of $101,197 would face a whopping $6,754 tax increase (6.67 percent of their income), the 14th-worst among the nation's metropolitan areas.
By contrast, a household in Kingston with a median income of $85,273 would face a 5.25 percent tax hike ($4,478), putting it in the middle of the pack nationwide.
Meanwhile, high-income taxpayers likely would continue paying the alternative minimum tax, which was devised to stop the wealthy from using tax shelters like oil well investments to avoid paying any tax at all. Instead, however, the extremely unpopular and controversial provision actually has helped some reduce their payments by, among other things in the complicated formula, capping the alternative minimum tax rate at 28%. The highest rate otherwise is 35%.
Alternative minimum tax rates start at 26 percent and rise to 28 percent for those earning $175,000 or more. But that doesn't mean there are no alternative minimum tax implications in the fiscal cliff negotiations. The Internal Revenue Service has warned that unless Congress applies its annual "patch" adjusting the alternative minimum tax income thresholds, the number of households paying that tax would jump from about 4 million to about 33 million nationwide in the 2012 tax year. Those households' tax bite would climb by an average of $3,700, according to the Tax Policy Center.
In the 10514 ZIP code of Chappaqua, for instance, 5,846 tax returns were filed in 2008. The average income per person in the tony community, home to Secretary of State Hillary Clinton and her husband, former President Bill Clinton, was $196,204. That year, no alternative minimum taxes were paid by taxpayers earning below $50,000, and less than $31,000 was collected for taxpayers earning $75,000-$100,000. The 833 taxpayers with returns showing adjusted gross income of $100,000-$200,000, however, paid $1 million in alternative minimum taxes, and the 2,179 taxpayers with incomes of $200,000 or more shelled out $23.5 million.
Still, don't look for changes in the tax anytime soon.
"I have not heard about changing the alternative minimum tax," said Chappaqua tax attorney Lee David Auerbach. "That's a political no-no."
Amy Allen, managing director of advocacy and international business at the Westchester County Association, said that in Westchester County, high incomes -- and high taxes -- come with the territory.
"Obviously, in Westchester, $200,000 is not exactly a high income number given that we pay the highest property taxes on the planet," she said.
The county's median property taxes of $9,945 in 2010 ranked it No. 1 out of 806 counties, according to a Tax Foundation study.
A secondary impact of the fiscal cliff would be reduced federal funding transfers to localities.
The New York State School Boards Association estimates that school districts in the state would lose an average of $243,000 in federal funding.
The four metropolitan areas that would be hit hardest by a failure to steer clear of the fiscal cliff are lower-income regions in Texas, including No. 1 McAllen-Edinburg-Mission, where a $2,938 tax increase would account for 8.14 percent of income.
President Barack Obama and Republican congressional leaders have been negotiating to try to avert the fiscal cliff -- across-the-board tax increases and spending cuts that automatically would be triggered on Jan. 1 if a budget agreement is not reached.
Congress put those provisions in place to encourage a deficit reduction deal that could overcome partisan differences.