December 20, 2013. Last week, Governor Andrew Cuomo accepted the final report of the New York State Tax Relief Commission that he had appointed earlier this Fall. This commission, which was co-chaired by former Governor George Pataki and former State Comptroller H. Carl McCall, had been charged by Governor Cuomo with identifying ways to provide property and business tax relief to New York’s homeowners and businesses.
Today, the Fiscal Policy Institute joined with six of New York’s leading progressive groups in releasing a report analyzing and critiquing the recommendations of the Tax Relief Commission. That report, which is entitled Taking New York Backwards: Pataki Commission’s Tax Cuts Exacerbate Inequality and Favor the Wealthy, details the flawed budgeting and severe inequity of the recommendations, which fail to adequately address urgent needs in education funding, health care, infrastructure investments, and progressive tax relief for lower and middle-income families. While we have criticized some of the specific recommendations of the Governor Cuomo’s other tax advisory commission, the Tax Reform and Fairness Commission, chaired by investment banker Peter Solomon and former Comptroller McCall, that Commission’s report shows that it is possible to implement tax cuts that make sense from a tax fairness and/or an economic competitiveness perspective without reducing revenue.
The Pataki Commission delivered on the Governor’s charge to focus on homeowner property tax relief and business tax cuts by recommending $1 billion in property tax relief for homeowners, and $706 billion in corporate tax cuts. But, the Commission also went beyond that charge in proposing two additional measures which, if and when fully implemented, would deliver $4 billion a year in tax relief to the state’s wealthiest residents. These two measures involve
- Reductions in New York’s estate tax which applies to only the three percent largest estates by increasing the threshold, below which there is no tax, from $1 million to $5.25 million, and reducing the tax rate for estates above $5.25 million from 16% to 10%. The Commission’s report estimates the cost of its proposed Estate Tax cut, as it is phased in over time, at $381 million in the 2016-17 state fiscal year, $627 million in FY 2017-18 and $772 million in 2018-19.
- The reduction in 2018 of the state’s current, temporary top Personal Income Tax rate of 8.82%, which applies only to families with taxable incomes above $2 million a year and individuals with taxable incomes above $1 million, to the permanent top rate of 6.85%. This would represent a 22.4% reduction in the personal income taxes paid by the highest-income one-half of one percent of New York taxpayers. No estimate is given by the Commission of the cost of this proposal but based on state budget reports, we know that the revenue lost from this proposal would be at least $3.2 billion a year.
After a full analysis, our conclusion is that even businesses should be questioning the recommendations made by the Pataki Tax Commission. Cutting $1.5 billion in taxes per year for corporations ($706 million) and the wealthy ($772 million in estate tax reductions) will leave New York State little room for programs that actually promote economic growth. Ensuring the financial and economic viability of the state’s local governments is essential if New York is to have a strong business climate. And strong schools to provide well educated workers are much more important to the success of New York State businesses than the dollars they will receive from these ill-conceived tax giveaways. If the top personal income tax rate on millionaires were to be cut as recommended by the Commission, the situation would be substantially worse.
Corporate Tax Cuts
Corporate tax cuts have not been shown to promote economic growth in the past and are an expensive way to make a symbolic statement about being open for business. By using resources that could be used for critical local infrastructure investments and for the provision of adequate state aid for education, the business tax cuts proposed by the Commission may in fact cause business to leave New York. Businesses decide where to locate on the basis of the total economic environment not just taxes as the Pataki Commission’s Report implies.
The recommended changes to the estate tax will have little impact on New York’s economy while cutting greatly needed revenues. The NYS Department of Taxation and Finance has shown that millionaires are not leaving the state because of the estate tax. The estate tax cuts recommended by the Commission will cost nearly $800 million a year when fully phased in. The bulk of this windfall would go to a relative handful (fewer than 200) of the very wealthiest estates valued at over $10 million each. The Pataki Commission can only justify this giveaway by totally ignoring research by the State’s tax policy experts who, in the Department of Taxation and Finance’s recent report on the estate tax, concluded that “Migration studies regarding the impact of taxes such as the estate tax have shown that taxes generally are not a major factor in the decision of where to live or retire.” These studies generally show that taxes have very little impact on cross-state migration and estate tax revenues.
Property Tax Relief
The property tax freeze proposed by the Commission is clearly regressive. Homeowners with more expensive homes (and normally higher incomes) will get larger tax breaks than owners of more modest homes, even when those latter households have property taxes that are extremely high relative to their incomes. Moreover, the freeze proposal will send less tax relief to our hard-pressed cities. Targeted tax relief is a much better plan and the Circuit Breaker approach, also recommended in the Commission report, will give a much bigger bang for the buck IF designed and implemented appropriately. Giving meaningful relief to those hardest hit by property taxes, in addition to being progressive and fair, can be done in a way that is both revenue neutral and good for economic growth.