Tax & Budget
Analysis
The People's Budget
1999-2000: A Blueprint for Equity, November 1998.
Restoring a Fair and Adequate Tax System
Restoring a fair and adequate tax system is a far preferable solution to New
York's structural deficits than further spending cuts. When polled about state
budget priorities, most state voters indicate that they would gladly forego tax
cuts in order to avoid cuts in social programs or the layoff of state workers.
While there is a very vocal minority of talk-show callers who take an adamant
anti-government position, most New Yorkers understand that the services provided
by government make an important contribution to the functioning of the state's
economy and to the maintenance of their quality of life. Most New Yorkers are
also supportive of programs that provide a social safety net and assist the
needy in effective and efficient ways. New York State has a great deal of room
within which to implement a "fair tax" solution, because the large,
multi-year tax cuts enacted in 1987, 1995, 1997 and 1998 tax changes have made
the state tax system less fair, less stable, and less balanced.
People's Budget Recommendations:
- Increase the Progressivity of the Personal Income Tax (PIT). Since the
mid-1970's, New York State has cut its top PIT rate from 15.375% to 6.85%.
Before the 1987 tax cuts, the state's top rate was 13.5% on investment
income and 9.5% on wages, salaries and business income. The top rate is now
6.85% on both types of income - lower than the top rates in about half the
states with income taxes. By restoring some of the progressivity that was
eliminated by the 1987 and 1995 tax cuts, approximately $1.7 billion could
be generated for socially and economically productive investments in the
state's human and physical infrastructure.
a. Over $400 million could be saved by simply reducing the amount of the
most recent (1997) tax cut for taxpayers with incomes between $100,000
($75,000 for singles) and $150,000, and by eliminating that tax cut for
taxpayers with incomes above $150,000. This could be done by restoring the
top tax rate on the portion of taxable income over $100,000 ($75,000 for
singles) to the 1996 top rate of 7.125%.
b. An additional $1.3 billion could be generated by establishing an
additional tax of 1% on the portion of all taxpayers' income above $150,000
and another 1% on the portion above $200,000. Even for this small number of
state taxpayers, tax rates would still be well below what they were in 1987.
For those with incomes between $150,000 and $200,000, the top tax rate would
be 7.85% compared to the 1987 top rates of 9.5% on earned income and 13.5%
on investment income. For those with incomes above $200,000, the tax rate
would be 9.125%, still below the 1987 rates.
- Close Corporate Tax Loopholes. New York State's annual Tax Expenditure
Report shows that businesses receive an estimated $1.6 billion in tax breaks
each year. In addition, untold millions more are lost via transfer pricing
and other techniques used by large, multi-national corporations to avoid
paying their fair share of taxes. New York could reduce the losses from
these tax preferences by closing the loopholes that it added to the
Alternative Minimum Tax (AMT) in 1994, and providing that no firm can use
preferences to reduce its tax liability by more than half. One model is the
comprehensive tax reform bill introduced last year by Senator Franz Leichter
and Assembly members Scott Stringer and Arthur Eve. That bill would have
strengthened the AMT, eliminated over $600 million of loopholes, and
generated an additional $250 million by continuing the corporate surcharge
at the 1996-97 level of 2.5%, well below the 15% rate of the early 1990s.
- Reform the STAR Property Tax Relief Plan to Eliminate its Unfair or
Unaffordable Features. While the Governor's STAR plan addresses an important
need, it does so in an inefficient and ham-handed manner. By allocating
property tax relief in a way that is unrelated to the amount of a
household's property tax bill relative to its income, STAR delivers hundreds
of millions of dollars of benefits to homeowners for whom property taxes
represent a very small percentage of their income and costs twice as much as
a substantial expansion of the state's circuit breaker credit which could
deliver much more relief to those who are truly overburdened by property
taxes at one-half the $2.7 billion that the STAR program will cost annually
when it is fully implemented.
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