INTRODUCTION

There is good news and bad news for families in New York.

The good news is the remarkable job-creating engine of New York’s small businesses.  The economy is growing in ways that defy the conventional wisdom about our city.  Wall Street, real estate and the creative economy still generate great wealth here, but a careful look shows that the recent economic boomlet is happening in places like Williamsburg, Corona and East New York.

The skyscrapers of Manhattan continue to rise, but the real action is down on the street.  The shopping streets of all five boroughs to be precise.

While government can take some credit for the small business buzz and some of the degree to which crime has been held down, the reality is that the energy of the immigrant class and the so-called creative class have done it the old fashioned way - they earned it.

And while some in government were looking away, the Brooklyn Chamber jumped in with innovative answers to the biggest challenges facing businesses in our biggest borough.

You have created Brooklyn Health Works, an insurance plan that allows small business owners to buy insurance for their employees at lower prices by pooling risk.  Your “Brooklyn Connects” program provides expert technical assistance to help our businesses win lucrative government contracts.  And the Good Help program is developing our workforce by helping employers find full and part-time employees, screening potential candidates and checking references ahead of time.

THE MIDDLE CLASS SQUEEZE

But with this invigorating renewal of New York City and a continued recovery in the financial services sector, we have seen a gathering of problems for the middle class and those aspiring to get there. 

In Manhattan today, the top fifth makes 52 times what the lowest fifth makes -- $365,826 compared with $7,047.  That’s up from 32 times in 1990.  And it means that the poorest 20% make roughly $2 for every $100 in income for the very rich.

Median household income is actually down in our nation while the inescapable costs of life for those in the middle class and those struggling to make it are skyrocketing.  Incomes are down by about 4% since 2000 while college tuition is up 40%, gas prices are up 47% and health care costs are up 55% in that same period.

And the most basic of needs - a place to live - has become so costly in New York that the average apartment now costs $920 a month to rent.  That’s a 16% increase since 2002.  Sticker shock for buyers has been even more pronounced.  The Corcoran report says the average apartment costs $647,000 in Brooklyn nowadays. 

Now you always want values going up, but how do New Yorkers keep up?  Well they aren’t.  More than one in four New Yorkers pay more than 50% of their income in rent.

Today, we are simply failing to enact solutions to some of the most daunting challenges facing the middle class and those striving to get there.  Subsidizing college tuition, creating a fair national health care program and a plan for energy efficiency all are ideas that my Republican friends who control Washington are failing to act on.  Look at this chart and you begin to see just how much those in the middle class and those aspiring to get there are being squeezed.

THE LOSS OF PROGRESSIVITY IN OUR TAX CODE

But while our nation’s middle class has struggled because of neglect of these important issues, it is the active tax policies of the recent years that have saddled America and New York with an increasingly regressive tax code that has contributed to a widening gap between the rich and everyone else.

It’s time we changed this.  It’s time we gave the middle class a real tax cut.  It’s time we restored progressivity and fairness.  It’s time we created a zero tax bracket for those struggling to make it. And it’s time we gave parents a bigger break as they raise their kids.

First, a minute or two about the problem we’ve created recently - a tax code that is simply unfair.

President Bush’s tax cuts have disproportionately benefited the well-to-do.  53% of the tax cuts have gone to the top ten percent of the population and the average millionaire pays over $100,000 less a year in taxes today than before the cuts.

Who is this helping? Vice President Cheney for one. The Bush tax cuts lopped a million dollars off the taxes he owned on the $9.1 million in income he reported to the IRS last year.

The regressive subsidy to the well-to-do – which have set us back years in the effort to preserve a more progressive tax code – have exacerbated the disparity between the rich and everybody else.

How big has the gap become?  Consider this.  The average American millionaire has received $111,549 in tax cuts since Bush took office.  That is 2.6 times the median income in the five boroughs, which is $41,509.  And it’s 3.1 times the median income in Brooklyn.  Think about that for a minute: the average millionaire has received an annual tax cut three times the size of all the money your everyday Brooklynite earns in a year.

THE MIDDLE CLASS TAX RELIEF ACT

There are many ways we in government express our values.  We need to honor the challenge faced by the middle class and those fighting to make it there.  We need to improve the gateway to the middle class – our public schools.  And we need to do something about those facts I gave you about the shortage of work force housing.

But today I am announcing a plan to use the best tool we have to make government more fair. So here is my plan.

A 10% tax cut on individuals making up to $75,000 and couples making up to $150,000.  This will mean that on average every New York middle-class family would get $430 back. A family that makes adjusted gross income (same below) between $100,000 and $125,000 would get back over $1,200 on average.

A doubling of the per child tax credit.  Back in 1999 one of the first bills I introduced led to the doubling of the annual tax credit for every dependent child under the age of 18 from $500 to $1,000.  Now we should double it again to keep up with the high costs of raising and educating kids.  Under my plan, every family making less than $150,000 would see that credit double again, to $2,000 per dependent child. 

A new zero tax bracket.  The Earned Income Tax Credit was designed to eliminate the tax burden on low-income Americans and in some cases provide a rebate.  But the EITC is so complicated that many filers don’t know they are eligible, and the credit begins to phase out when family income passes $17,000.  My plan is simple.  If you make less than $12,500 or file jointly and make less than $25,000, you pay no taxes. And if you would have received a rebate under the EITC, you still get that money back.

Fix the Alternative Minimum Tax.  The Alternative Minimum Tax took effect in the late ‘60s as a way to stop the richest among us from avoiding taxation. In essence, any American in the top 25% of income must calculate not only their normal tax liability, but also their liability under the AMT. The rules for the AMT allow for fewer deductions and tax at a higher rate.  A taxpayer must then pay the greater of the two taxes.

Anybody who has had to calculate the AMT knows that it is very complicated, and also inherently flawed. When the law was written, it didn’t adjust for inflation, so as of 2004, many middle-class Americans started falling victim to the AMT.

Last year, 15% of all families making between $75,000 and $100,000 had to pay the AMT. That is up from 2% in the year 2000.

Also, the AMT is calculated from national income levels, so people who live in areas with high costs of living suffer more. Finally, some have called the AMT the “Blue State Tax” because local and state taxes are considered deductible under normal tax law but not under the AMT.  States like New York and New Jersey get hit the hardest.

My plan would follow up on the AMT patch passed by Congress in May for 2006, and extend the fix through 2007 so that no New Yorker making under $200,000 has to pay the AMT.

THE BOTTOM LINE

The bottom-line is that under my plan, 79% of all New Yorkers would receive a tax break.  That’s 2.7 million tax breaks.  If you are in the middle class or struggling to make it, this effort will help you.

So how do we pay for this?  Well, I begin from the premise that one of the most regressive ways to spend government funds is on interest so I ensure that this plan is budget neutral.  The deficit doesn’t rise a dime.  In fact, we save almost $9 billion over ten years.

We ask for millionaires and billionaires to pay a little more.  A surcharge of 7% on income over a million bucks and a 10% surcharge on income over a billion bucks would attract $574 billion to the treasury over ten years to help restore fairness. Only the richest 0.6% of New Yorkers would have to pay a little more.

Right now, the top tax bracket starts at $336,000, meaning that someone making $336,000 pays the same marginal rate as someone making $30 million. That is hardly a progressive tax code. 

Before anyone gets in a huff about this “soaking the rich” or anyone else, let’s keep in perspective that even with my plan any family making between $1 million and $2.76 million will do better under my plan than they were doing before the Bush tax cuts.  A family making $2 million will still pay over $18,000 less than before the Bush cuts.

While a relative handful of Americans would pay a bit more under this plan, we all would benefit from efforts to save the middle class and those aspiring to get there. 

CONCLUSION

All of us – rich and poor alike – need police officers, teachers, nurses and cleaning crews to work in hotels like this one.  If we continue the way we are going, those workers are going to have no choice but to leave our city to find a more affordable life for their families.

When that happens, we will all have to pay a lot more in taxes to lure them back to our town. 

So even if you are one of the lucky few who pay a little more under this tax plan, we all need to see the value of saving our shrinking middle class.  The Brooklyn Chamber of Commerce gets it. 

If we pass this tax plan, we’ll show Congress gets it too.