MILLIONAIRE SHAKEDOWN

to tax, or not to tax-that is what new york state and city legislators are debating as they negotiate budget proposals.

new york's yawning budget gaps were mostly created by the black hole left when wall street's largesse dried up. program cuts have helped close the gap a little, but only so many cuts to vital services can be made. so the solution for some legislators lies in raising personal income taxes for the wealthiest new yorkers, from millionaires to $300,000-aires.

for the well-heeled upper west sider, these new taxes will either help prop up the state and city, or force wealthy residents to hoard their money and, at worst, move away.

many democrats in the state legislature, as well as the working families party, which is lobbying heavily for one tax proposal, argue that taxing the wealthy is the least painful way to close new york's budget deficit.

in gov. david paterson's executive budget, deep spending cuts were made to a slew of programs, including medicaid and education, the two biggest portions of the state's budget. but these proposals could hurt upper west siders who rely on after-school programs, health care assistance for the elderly and other social services. opponents of these tax proposals say rich new yorkers create jobs and pay a lion's share of tax revenues already. and those residents who feel overtaxed and have the means to move will do so.

e.j. mcmahon, director of the manhattan institute's empire center for new york state policy, said that the economy could be badly damaged by an exodus of wealthy residents.

"it doesn't matter how high you jack up taxes in new york: a-rod and katie couric will still be here," mcmahon said. "that's not the kind of person we're talking about. we're talking about entrepreneurial, job-creating people who in a severe recession are the only people who have choices about where to be and what to do."

the argument, however, is largely unsupported by the facts, according to many economists-including some who oppose the top bracket tax increase because of the potential loss of jobs and investments. wealthy flight, they say, is a myth. new york experienced no such effect when it raised taxes on millionaires in 2003 (although mcmahon notes that the 2003 hike provides a poor basis for comparison, since the hikes were temporary and mitigated by federal tax cuts). studies have shown that california and new jersey have not experienced the phenomenon either, despite some claims that financial problems in those states are partly attributable to tax increases on the wealthy.

"most people are not as tax-sensitive as we think they are," said iris lav, deputy director of the center on budget and policy priorities in washington, d.c. "there are a lot of reasons why people live where they live. they live there because their businesses are there, because they like it, because their families are there. state income taxes are pretty low on their list because it just doesn't make that much difference to them."

the specifics of city and state tax proposals are still uncertain, even as the march 31 budget deadline looms for albany, and the city's june 30 deadline creeps up a few months later. bloomberg has called tax increases on the wealthy "crazy." paterson and senate majority leader malcolm smith have said such increases should be considered only as last-ditch options, but both have since softened on the issue. assembly speaker sheldon silver, on the other hand, passed a millionaire's tax in his conference last year and supports raising taxes on wealthy new yorkers.

in the state legislature, the most discussed proposal is the "fair share tax plan" put forward by eric schneiderman, a west side state senator. after democrats gained majority status in the senate, schneiderman was first out of the gate with a bill to increase taxes on the wealthiest new yorkers.

schneiderman's bill would hike tax rates on residents making more than $250,000. the tax hike is tiered, so that while taxes on income exceeding $250,000 would rise 1.4 percent, taxes on income exceeding $1 million would increase 3.45 percent, to a total of 10.3 percent. as the current tax code stands, all households making more than $40,000 pay the state the same 6.85 percent tax rate.

state sen. jeffrey klein, the democratic deputy majority leader from the bronx, proposed an alternative plan that he said would generate $1 billion in revenue. under his proposal, new yorkers who make less than $250,000 will get a tax cut in the form of a debit card to encourage spending. the tax cut will give filers double the amount of the standard deduction-that is, the dollar amount reduced from a taxpayer's total taxable income. klein would also hike the tax rate on people earning more than $1 million a year to 8.97 percent, an increase of 2.12 percent. at $3 million, that rate hits 10.3 percent.

while it isn't yet clear which plan has more supporters, schneiderman predicted that increasing taxes on the wealthiest new yorkers will weather the opposition and be included in final budget negotiations, albeit with possible "tinkering" on the details.

"we're not proposing to close the whole budget gap by raising the tax," schneiderman said. "we're demanding that is part of the solution."

state sen. tom duane, a sponsor of schneiderman's bill, said that the three levels of government provide essential services for district residents. even if well-to-do new yorkers are financially sound today, the future is uncertain.

"there are parents who were worried last week about whether or not their children were going into private school," duane said. "now they are worried that their neighborhood public school will be good for their children, not overcrowded, staffed with well qualified teachers."

meanwhile, the city is refining its own tax plan. council speaker christine quinn said during her february state of the city address that she wanted to create a new tier for high-earning taxpayers and eliminate city income tax for families making less than $45,000, in line with standards for federal and state personal income tax laws. for those with a taxable income-income after payroll taxes are deducted-between $250,000 and $500,000, rates would be raised .6 percent, to 4.25 percent; for taxable income that ranges from $500,000 to $1 million, the tax rate would be 4.45 percent; and the rate on taxable income greater than $1 million would be raised to 4.65 percent.

legislators, however, should proceed with caution, warns east side assembly member micah kellner. with president barack obama's pledge to let his predecessor's tax cuts for wealthy americans expire and possible increases in state and city taxes, new yorkers could quickly become overburdened.

kellner pointed to the millionaire tax bill his chamber passed last august, when republicans ruled the state senate, noting the legislation purposefully left out those making less than $1 million in taxable income.

"what becomes the breaking point?" said kellner, who supports the millionaire's tax. "is it raising taxes on those making a half million dollars on the state level and over $300,000 on the city level, and raising taxes on the federal level? i don't particularly believe you can do all three without breaking the backs of new yorkers."

however the debate resolves, it is almost certain that a slice of upper west siders will be affected by the state and city tax plans.

the neighborhood is still home to several public housing complexes, mixed income homes and rent controlled buildings that defined the neighborhood generations ago. but luxury apartments have sprung up, filled with young professionals and new families. thousands of apartments have been deregulated and sold for market rate. the labor-aligned center for working families, supporters of schneiderman's "fair share" tax proposal, used income tax returns to identify those who would pay more under the plan. the group's findings show that in the two assembly districts covering the upper west side, the largest segment that would be affected by the change is households making $250,000 to $500,000 in taxable income, or roughly 5 percent of the taxpaying population.

overall, 10.3 percent of taxpayers in assembly member linda rosenthal's district, which makes up the bulk of the upper west side, will meet the new tax thresholds outlined in schneiderman's plan, according to the center for working families. in assembly member daniel o'donnell's district, which roughly covers the mid-west 80s to 110th street, including morningside heights and the manhattan valley, only 8.3 percent of households will pay higher taxes.

still, there appears to be little risk in angering the wealthy, progressive and loyal democrats who consistently vote for legislators like schneiderman and duane. "obama, needless to say," schneiderman said, "overwhelmingly won in my district and won on a platform of raising taxes on individuals making more than $250,000 a year."

-- with additional reporting by ross goldberg. ***************************************************************

straw poll: tax 'em to get a sense of how new yorkers feel about tax increases for the wealthy, we hit the streets to ask a random sampling of pedestrians-mostly on madison avenue and central park west-if they thought such a move was fair, and if it would cause people to flee manhattan. surprisingly, in the city where almost everyone has an opinion about everything, people were reluctant to share their thoughts on personal finance. many hurried away at the mere mention of the words "economy" or "taxes." perhaps nobody wanted to risk being associated with the finance, insurance and real estate industries that have been blamed for the current economic turmoil.

those who agreed to talk seemed to feel it was appropriate to raise taxes on the wealthy during tough times. one woman, who did not want to be named, said, "you just go with it?it's not that bad for anyone i know."

another anonymous upper west sider, retired, had little sympathy for the wealthy. "you have to believe people in that bracket have been getting breaks all along," he said. "did they make their money in the city? all of the sudden the city is a bad guy?" taylor wagenseil, an east sider who was game enough to admit he works as an investment manager, did not think more taxes would cause the wealthy to leave new york because the proposed increase isn't that big.

diane carlin disagreed. "i think people might leave, absolutely," she said-although she added that taxing the wealthy is necessary to address budget shortfalls. upper east sider pat vernon, a building manager, also thought raising taxes on the wealthy was ok, since they are best equipped to cope with the added burden and remain city dwellers.

finally, bronx resident sean williams, who works for espn, seemed to think there was some kind of karma at work: "once you get to a certain income bracket, you know you got there by working hard," he said. "give back, so to speak."

-henry melcher