Economists Ike Brannon and Erik Bergren have proposed a plan to restructure New York's sales tax by exempting low-cost goods and raising rates on luxury items. Their paper, published on March 24 by the Jack Kemp Foundation, outlines the proposal.
According to the proposal, New York could make its sales tax system more progressive by exempting goods under $110 and increasing the rate on luxury items over $1,000. This change is expected to generate significant savings for lower- and middle-income households.
New York City has one of the highest combined sales tax rates in the country, totaling 8.875%. This includes a 4% state rate, a 4.5% city rate, and a 0.375% surcharge for the Metropolitan Commuter Transportation District. According to the New York City Department of Finance, this total rate applies to most taxable goods and services in the city.
The Institute on Taxation and Economic Policy reports that in states with a sales tax, the poorest 20% of households pay an average of 7.1% of their income toward sales and excise taxes, compared to just 0.9% for the top 1% of earners. This disparity makes sales taxes among the most regressive in the nation.
In 2023, according to the U.S. Department of Agriculture, the lowest-income households spent 32.6% of their after-tax income on food, while the highest-income households spent just 7.6%. This stark contrast underscores how consumption taxes on basic necessities affect poorer families more heavily.
According to its website, The Jack Kemp Foundation is a nonprofit organization that promotes inclusive, pro-growth public policy rooted in principles of free enterprise, economic mobility, and equal opportunity. It was established to carry on the legacy of former congressman and Housing Secretary Jack Kemp.