This results because the standard deduction is a smaller share of total income for taxpayers with higher income levels. Absent statutory increases or indexing provisions, the standard deduction will, over time, lose value because of inflation. Standard deduction levels remained unchanged until the legislation enacted this year. The real values of the standard deduction are even higher than they were in 1989, when they were at their peak. The tax rate schedule, along with the standard deduction and credits, also affects whether or not low-income taxpayers pay taxes.
Taxpayers deduct credits after computing their tax liability.
Therefore, the lower the bottom rate, the smaller their tax liability, and the greater the likelihood that the taxpayer will owe no taxes after credits. New York's bottom rate was at 4 percent from 1989-1994. The 1995 legislation returns the bottom rate to 4 percent in 1996. This progressivity effect is partly offset by the fact that the standard deduction's value is higher for taxpayers in higher tax brackets. However, as income increases, taxpayers are more likely to itemize deductions and therefore less likely to benefit from the standard deduction.