Full Implementation of Obama’s Immigration Executive Actions Would Bring $82 Million in Tax Revenues to New York

February 24, 2016. A 50-state study released today by the Institute on Taxation and Economic Policy, co-released in New York by the Fiscal Policy Institute, finds that if President Obama’s executive actions on immigration were permitted to be fully implemented they would bring an additional $82 million in New York state and local tax revenue compared to not having the actions in place.

The executive actions would add to the tax revenue in all 50 states and in the District of Columbia. Nationally, the report finds, undocumented immigrants contribute a total of $11.6 billion to state and local treasuries. If the president’s executive actions were fully implemented that would boost the state and local tax contributions by $800 million.

The findings are particularly relevant given the lawsuit brought by 26 states, now pending in the Supreme Court, that is holding up the full implementation of the president’s executive orders. One particularly relevant issue: What gives the states standing to sue is a claim by the state of Texas that it would endure serious harm if it faced the cost of issuing driver’s licenses to qualified immigrants granted Deferred Action for Childhood Arrivals (DACA) and Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA). While it is unclear how much it would cost the state of Texas to issue those licenses, it is quite clear that full implementation of DACA and DAPA would bring offsetting tax revenue increases—$59 million per year for Texas, according to the ITEP estimate.

The reason for increased tax revenue is twofold: higher earnings, and higher levels of tax compliance. Immigrants with legal permission to work earn more than those without it, so they are paying tax on a higher income—the ITEP study suggests a 7.5 percent wage gain due to DACA/DAPA. And, DACA and DAPA provide a very strong incentive for participants to comply fully with tax filing requirements; currently, about half of undocumented immigrants do not file income tax returns.

“Politicians should bear in mind that undocumented immigrants are already taxpayers, and the taxes they pay would be even higher if they had temporary work permits,” said David Dyssegaard Kallick, director of the Fiscal Policy Institute’s Immigration Research Initiative. “Allowing undocumented immigrants to work legally does not significantly change the number of workers in a local economy,” Kallick added, “but it does mean that fewer people are working off the books.”

“Regardless of the politically contentious nature of immigration reform, the data show undocumented immigrants greatly contribute to our nation’s economy, not just in labor but also with tax dollars,” said Meg Wiehe, ITEP State Tax Policy Director. “With immigration policy playing a key role in state and national debates and President Obama’s 2014 executive action facing review by the Supreme Court accurate information about the tax contributions of undocumented immigrants is needed now more than ever.”

Like other people living and working in New York, undocumented immigrants pay sales and excise taxes when they purchase goods and services, they pay property taxes directly on their homes or indirectly as renters. Many undocumented immigrants also pay state income taxes, using Individual Taxpayer Identification Numbers (ITINs). Undocumented immigrants currently pay 8.9 percent of their income in state and local taxes. Once the executive actions are fully implemented, they can be expected to pay 9.9 percent of income, through a combination of higher levels of tax compliance and higher earnings. By contrast, the effective rate paid by the top 1 percent of filers in New York is 8.1 percent.

The report also shows the state and local tax gains that could be expected if all unauthorized immigrants were granted legal status under a comprehensive immigration reform. That gain would be $246 million in New York State alone, and $2.1 billion nationwide.

Ron Deutsch, executive director of the Fiscal Policy Institute, adds: “Every year now the NYS DREAM Act comes up for debate in Albany, and every year someone raises the question of the cost. Here’s a memo to the legislature: not only would better educated immigrants mean higher tax revenues, but these students and their parents are already paying a lot more in state and local taxes than people seem to realize.”

Full Report or to Find State-Specific Data

PDF of Press Release

Figures from New York State Economic and Fiscal Outlook 2016-2017

All the figures listed below are in JPEG format. The briefing book page number on which each figure appears is included below.

NYS FY 2017 Revenues – Page 4

NYS FY 2017 Expenditures – Page 5

Fig 1. Local Assistance and Support to State Agencies Keeps Falling Because of Governor’s 2% Spending Cap – Page 10

Fig 2. NY’s Economic Ability to Pay Well Exceeds the Governor’s 2% State Spending Limit – Page 11

Fig 3. Characteristics of NYS Workers Who Would Benefit from an Increase in the Minimum Wage to $15 by 2021 – Page 14

Fig 3b. Characteristics of NYS Workers Who Would Benefit from an Increase in the Minimum Wage to $15 by 2021 – Page 15

Fig 4. Top 10 NY Industries with Largest Numbers of Workers Who Would Benefit from an Increase in the Minimum Wage to $15/Hour by 2021 – Page 16

Fig 4b. How Many Workers in Each Industry Will See a Wage Increase – Page 16

Fig 5. The Growing Share of All Income Going to the Top 1 Percent – Page 20

Fig 6. A Sharp Reversal: Shared Prosperity vs Income Polarization in NYS – Page 21

Fig 7. NYS’s Regressive State and Local Tax System – Page 22

Fig 8. Accumulating Tax Cuts Are Starving Revenues for Services NY Needs – Page 23

Fig 9. Benefit of Proposed Education Tax Credit is Extremely Large Compared to Average Tax Credit on Charitable Deductions – Page 25

Fig 10. 1% Plan: Increase Personal Income Tax Rates Incrementally for Top 1% – Page 27

Fig 11. Where Does Our $8 Billion in Economic Development Spending Go? – Page 29

Fig 12. Governor’s Proposed Use of $2.3 Billion in Settlement Funds in FY 2017 – Page 32

Fig 13. Students in Priority Schools Face Economic Hardships – Page 33

Fig 14. Large Upstate School Districts Have Lower Graduation Rates and Higher Poverty Than Average – Page 34

Fig 15. School Aid Funding Falls Short of Promise of CFE Settlement – Page 35

Fig 16. State Support for Schools has Declined – Page 36

Fig 17. Falling Funding for Social Welfare Agencies – Page 40

Fig 18. Number of Safety Net and SNAP Recipients Is Much Higher than in 2007, Despite a Decline in the Past Year – Page 41

Fig 19. Child Poverty Rates in Many Upstate Cities Top 35 Percent and Two Top 50% – Page 44

Fig 20. As the State Cuts Back, Cities and Counties are Squeezed – Page 47

Fig 21. NY Needs to Address the High Concentration of Black and Latino Poverty in Upstate Metro Areas – Page 48

Fig 22. Localities in NY Carry Over 50% of State/Local Tax Burden; 2nd Highest in US – Page 49

Shared Opportunity Agenda Overview – Pages 51-55

Instead of a New York City property tax cap, why not reform?

February 10, 2016. An op-ed by James Parrott, City & State.

The New York state Senate approved legislation on January 26 that would cap the growth in New York City property taxes at the lesser of inflation or 2 percent a year. The 45-16 vote occurred while Mayor Bill de Blasio was testifying nearby at a Joint Legislative Budget hearing.

State senators in favor of this bill made a three-pronged argument: property taxes have become too burdensome for middle-class homeowners; the property tax caps for municipalities outside the city have been—according to Senate Majority Leader John Flanagan—“a tremendous success,” as well as a job creator; and that the city had benefitted so much from uncapped property tax collections that the mayor shouldn’t be surprised about the governor’s proposal to shift Medicaid cost to the city.

However, this defense of the proposed property tax cap fails to address what analysts across the policy spectrum agree are a host of inequities in the city’s property tax system that result from provisions of the state’s 1981 real property tax law.

Effective property tax rates (taxes paid as a percent of true market value) are highly skewed. Most owners of condos and one-, two- and three-family homes pay the lowest effective rates, followed closely by co-ops. Rental properties, however, pay much higher effective rates – roughly five times the effective rates for condos and homeowners. Keep in mind that two-thirds of city residents rent, the median household income for home and apartment owners is twice that of renters and nearly three-quarters of rental housing is occupied by people of color.

Moreover, property tax rates vary widely for homeowners depending on the neighborhood. The inequities have been widely recognized for the past quarter-century and partial measures like the co-op/condo abatement may have relieved one form of inequity at the expense of widening another.

The Senate’s proposed cap would only exacerbate these inequities, locking in the panoply of problems and providing the biggest benefit to owners of property whose value has increased the most. Maybe it should just be called “the latest ruse to make it seem like we’re helping the little guy while making deep pockets deeper.”

When elected officials can summon the patience and courage for true property tax reform, three key ingredients will be needed: a blueprint to correct the myriad cap, assessment and class share problems in current state law; linkage to a circuit breaker in the city’s income tax that will ensure that no family pays an inordinate amount in property taxes relative to their income; and a provision to ensure that tenants in rent stabilized units benefit if property taxes decline on rental properties.

The goal should be to reduce the disparities in effective property tax rates among residential properties. Changes should be phased in gradually – a transition period of 10 to 15 years might be necessary. Since effective rates would rise on many one-, two- and three-family homes, a circuit breaker – or a targeted property tax credit – is critical to provide an income tax credit to offset burdensome tax increases for families of limited means. Reducing the burden on rental properties will only help alleviate the city’s affordability challenges.

Property tax reform should be revenue neutral to help garner broad support. Regarding commercial property taxes, the best thing to do is to curtail unnecessary property tax breaks that have favored the biggest developers and corporate real estate owners. The Hudson Yards commercial property tax breaks are the most egregious, followed by poorly targeted industrial and Commercial Abatement Program reductions. Savings could be used to provide relief to small businesses through a circuit breaker.

The strength and dynamism of the city’s economy and the attractiveness of its quality of life have made it a national and international magnet for people and businesses. Consequently, property values have been appreciating and property tax collections have risen 5.6 percent a year since 2010.

The city has used these resources to settle the huge backlog of municipal labor contracts, restore essential human services, address the homelessness crisis, make up for years of neglect at Rikers Island, and invest in affordable housing, infrastructure and an expanded police force while building up a prudent reserve to hedge against an economic downturn.

Outside of New York City, municipalities throughout the state have been forced to curtail spending in many areas that have degraded the quality of community colleges, public health, public safety and infrastructure – all a result of four years under a rigid property tax cap.

Rather than punishing New York City by imposing a similar fiscal straitjacket, Albany should invite New York City to propose comprehensive property tax reform and should examine the impact of the property tax cap on local services outside the city.

Testimony at the Joint Legislative Public Hearing on the FY 2017 Executive Budget – Workforce Development

February 3, 2016. James Parrott testified at a New York State Senate Finance and Assembly Ways and Means Committees hearing on workforce development about the impace of a $15 an hour minimum wage.

New York State Economic and Fiscal Outlook FY 2017

February 3, 2016. In its 26th annual New York State budget briefing book, the Fiscal Policy Institute analyzes and comments on Governor Andrew Cuomo’s FY 2017 Executive Budget.

The Executive Budget advances some bold and progressive proposals that well reflect the values and needs of New Yorkers. In particular, the governor has shown great leadership and vision in forcefully advocating for a first-in-the nation statewide $15 minimum wage. If enacted, the minimum wage increase would lift the incomes of 3.2 million New Yorkers who desperately need a raise. The governor’s proposal to build a system of paid family leave is another important step that would improve the lives of New Yorkers.

Executive Summary

PDF of Complete Briefing Book: New York State Economic and Fiscal Outlook FY 2017

Images (JPEG) of Figures in Briefing Book

Other FY 2017 New York State budget-related information from FPI:

Executive Summary: New York State Economic and Fiscal Outlook FY 2017

February 3, 2016. Vice President Joe Biden once said, “Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”

Governor Cuomo’s 2017 Executive Budget advances some bold and progressive proposals that well reflect the values and needs of New Yorkers. In particular, the governor has shown great leadership and vision in forcefully advocating for a first-in-the nation statewide $15 minimum wage. If enacted, the minimum wage increase would lift the incomes of 3.2 million New Yorkers who desperately need a raise. The governor’s proposal to build a system of paid family leave is another important step that would improve the lives of New Yorkers.

The Executive Budget rightly recognizes the need to address issues affecting some of the poorest and most vulnerable residents in our state. It proposes to reduce homelessness and high levels of poverty in many of our upstate cities. It includes a multi-year plan to combat homelessness, together with the development of 10 anti-poverty tasks forces; these are productive ways to recognize that child poverty and homelessness are at record levels across the state.

But, in many critical human infrastructure investment areas, rigid adherence to a two percent spending cap is unnecessarily blocking real progress. Last June, the State Budget Director noted that New York State “is in the best fiscal position in many years … with money in the bank, growing reserves and more surpluses on the horizon.” The state now enjoys its highest credit ratings in more than four decades. Although the recovery has benefitted New Yorkers unevenly, the state’s economy is in the midst of a period of sustained employment and total income growth. Tax receipts are growing at an annual rate of four or five percent. Yet despite the strong current economic and revenue picture, state operating expenditures are projected to increase by only 1.7 percent in FY 2017 from the current year—less than the 1.9 percent projected rate of consumer inflation.

This stark juxtaposition between four to five percent growth in tax receipts and a self-imposed cap on spending of two percent or less define a budget policy best characterized as unforced austerity. It is austerity driven by a policy choice, not by a faltering economy.

Unforced austerity budgeting has severely restrained services in many critical areas affecting New York’s children, families, and their communities. The state has simultaneously put a fiscal straitjacket on local governments by insisting that they live under an artificial and rigid tax cap, limiting property tax increases to two percent or the rate of inflation, whichever is lower. The result is that local government spending in most parts of the state has suffered, with a corresponding deterioration in services from schools to parks to libraries, and an inadequate public response to hardships afflicting many families. It is hard to imagine that a reduction in school and local government jobs of nearly nine percent would be possible without a significant erosion in public services.

In 2007, legislation responded to the final court ruling in the Campaign for Fiscal Equity case, establishing a program for getting the state in compliance with its own constitution and providing adequate funding for at minimum a sound, basic education to all students. That program was abandoned during the Great Recession. In the coming fiscal year, the state is $4.8 billion short of where it should be according to the legislation. Governor Cuomo proposes just $455 million in funds that can reasonably be considered going to fill a gap that is more than ten times that size, an abrogation of his constitutional responsibilities and a betrayal of New York State’s school children.

The Executive Budget also proposes a focus on community schools as a way to help faltering schools to improve, but the $100 million allocation is not nearly enough to implement the program in all the schools that need it. Eliminating the misguided Education Tax Credit and redirecting the proposed $150 million cost to community schools would be a better way to ensure that all students in struggling schools get the resources they need to succeed.

On an inflation-adjusted basis, general-purpose aid to local governments has fallen by 13 percent over the past five years. Declining state aid and capped ability to raise local property taxes have severely constrained local budgets around the state. In the first two years following the imposition of the property tax cap, county governments cut spending on community colleges and public health by 15 percent, fire protection by 14 percent, elder services by 13 percent, and youth services by 28 percent.

On top of the cuts sustained in the past five years of austerity, substantial further budget cuts will be layered on in order to keep within the two percent spending limit. These as-yet unspecified cuts total $9.5 billion over the next three years or an average of $3.2 billion a year.

Perhaps the biggest bombshell in this year’s Executive Budget is the proposal to shift what in two years will be about a billion dollars in CUNY and Medicaid spending from the state’s budget to the City of New York. This is a pernicious, unilateral shift in fiscal responsibility to a local government, essentially punishing the city for its economic and fiscal success.

Some state budget changes are benign enough, but others are more risky. Converting STAR from a directly paid state budget item to a credit against the personal income tax, for example, does little more than shift the expense out from under the cap. But the governor has also proposed a set of extremely ambitious infrastructure proposals. In this case, his ambition is not limited by the tight cap on operating spending because these are capital projects. Devoting resources to our state’s ailing roads, bridges and public transit is a wise investment. However, the funding sources to support these ambitious initiatives are vague at best. The budget should clearly identify funding plans for all of these initiatives, and match spending on the state’s infrastructure needs with the needs of year-to-year operations, without the constraint of a spending cap.

New York’s overall state and local tax system is regressive. The state personal income tax should be made more progressive to offset regressive property and sales taxes that result in an overall regressive state tax system. New York should build on the current income tax structure originally proposed by Governor Cuomo in December 2011, which is set to expire at the end of 2017, by increasing the number of brackets from eight to 12, and making the new structure permanent. This “1% Plan for New York Tax Fairness” would retain the middle class tax breaks the governor introduced then, and generally increase tax rates slightly for the richest 1% of New York’s taxpayers, i.e., those with incomes over $665,000.

If the “millionaires’ tax” is not extended, New York State would suffer a net $2.7 billion revenue drop that would entail a $1 billion tax increase for moderate- and middle-income families (with incomes from roughly $40,000 to $300,000), while the richest 1% would a get a $3.7 billion windfall. The 1% plan would raise income taxes by $2.2 billion, with 17 percent of that amount paid by out-of-state residents.

A sound body of research supports the conclusion that businesses can reasonably accommodate a phased-in $15 minimum wage and that it would be good public policy for New York. Since the government-funded human services sector is one of the state’s biggest low-wage employers. It is important that the state increase funding to make sure that the higher wage floor benefits the many non-profit sector workers providing state human services under state contract or paid through Medicaid reimbursements. Medicaid and other public assistance savings and increased tax payments will help offset the budget costs. On net, there will be no adverse economic effects for New York and the well-being of one-third of the workforce and their families will improve.

We have the resources to make sure this budget is of great value to all New Yorkers. Now we just need the political will to make it a reality.

Complete Briefing Book: New York State Economic and Fiscal Outlook FY 2017

Testimony at the Joint Legislative Public Hearing on the FY 2017 Executive Budget – Taxes

February 2, 2016. Executive Director Ron Deutsch testified before the Senate Finance and Assembly Ways and Means Committees on the Governor’s FY 2017 Proposed Budget and Financial Plan.

Income inequality has increased in New York during the recovery with income for the 1 percent growing faster than the average income for everyone else. New York’s combined state and local tax structure is regressive and several rounds of substantial multi-year tax cuts in the past three years have done nothing, on net, to make the tax structure less unfair. When the current “millionaires’ tax” expires at the end of 2017, it should be permanently replaced with the 1% Plan for New York Tax Fairness that will add four new, high-end tax brackets and continue the middle class tax cuts the governor initiated in 2012.

PDF of Complete Testimony

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