It’s a Boon to the Rich
By Frank Mauro, Executive Director, Fiscal Policy Institute
Rick Lazio likes to refer to his proposed tax cuts as balanced and fiscally responsible, and says they will “extend economic expansion across New York.” In reality, he fails on all three grounds.
The Lazio tax cuts are not fiscally responsible. Together with the spending increases he has proposed, Lazio’s cuts would reduce the federal government’s projected budget surplus by more than $2 trillion over the next 10 years. That’s too much, and would return the country to an era of chronic budget deficits or further threaten the solvency of Social Security and Medicare.
Lazio’s tax plan does virtually nothing to bring economic prosperity to parts of New York State that have been left behind. Only a minuscule two-point plank in his plan is devoted to this purpose.
Interestingly, these proposals are both direct ripoffs from the comprehensive Economic Agenda released by Hillary Rodham Clinton in February. Clinton calls for a $3,000-per-job tax credit and Lazio for a $1,000-per-job credit for those who create jobs in what he calls “areas of our state where the wave of prosperity has not yet reached.” Both candidates also support federal incentives to make high-speed Internet access available in such areas. These two proposals are small parts of Clinton’s comprehensive economic agenda, but the entirety of Lazio’s.
The Lazio tax plan is not balanced. Overall, 30% of Lazio’s cuts would go to the wealthiest 1% of taxpayers and 74% to the top 20%. This doesn’t leave much for the other 80% of taxpayers with incomes below $65,000 — an average saving of about $340 a year when the plan is fully phased in, 10 years from now.
This absence of balance is a result of the taxes that Lazio would cut and how he would cut them. In regard to the “marriage penalty,” Lazio backs the Republican congressional leaders’ bill even though it would cut taxes for the wealthiest Americans much more than is necessary to eliminate this problem. When it comes to reducing the unfairness of the payroll tax — the one element of Lazio’s plan that is targeted to the middle class — he leaves out lower-income working families even though he knows the tax hits them the hardest.
Many of Clinton’s tax proposals, like her College Tuition Tax Credit and her tax credit for contributions to Retirement Savings Accounts, are referred to as targeted because their value is reduced and/or phased out as a family’s income exceeds $100,000. Most of Lazio’s proposals are also targeted, but more indirectly.
For example, he proposes eliminating the estate tax for everyone. But, 98% of people who die each year leave no estates or leave estates that are valued at less than the level (now $675,000 and soon to be $1 million) on which there is no tax, and most of this tax is paid by a very small number of very large estates.
Thus, the benefits of this and other Lazio proposals, like his plan to reduce the capital-gains taxes, are concentrated on much smaller, wealthier portions of the population than Clinton’s proposals, which target those who need economic relief the most.
Cuts Are Best for N.Y.
By Stephen Kagann, Chief Economist, New York State
Which tax plan, Rick Lazio’s or Hillary Rodham Clinton’s, is better for New York’s workers, families, seniors, jobs and future? The Lazio plan wins by a mile.
A analysis by the Manhattan Institute shows the Lazio plan would leave $4.2 billion in the hands of working New Yorkers, while the Clinton plan would provide at most $1.2 billion for relatively few.
The Lazio plan would eliminate the marriage penalty. Lazio would make Social Security taxes deductible, by up to $4,724 off each worker’s taxable income. Lazio would repeal the Clinton-added tax on Social Security for seniors who choose to work and earn more than $34,000.
Lazio would increase deductible IRA contributions for working people to $5,000. His capital gains tax cut would enhance the regional economy, increase state and local tax revenues and leave more in the accounts of New Yorkers who save and invest.
Clinton’s plan relies on targeted tax credits, copying Mario Cuomo’s strategy that failed our economy so miserably. Tax credits are camouflaged spending, in which tax dollars we all pay are used to benefit those few who meet the Clinton requirements. Her claim that her plan would create 200,000 upstate jobs with targeted tax cuts is based on preposterous numbers and would never work.
These election-year plans raise a broader issue: how to help create more jobs in New York. In 1993, New York was in deep recession. The 1993 Clinton tax increase soaked up state income needed to create jobs, delaying our recovery for years. Only Gov. Pataki’s massive, multi-year, across-the-board state tax cuts catapulted New York from last to 11th in job growth.
New Yorkers pay more federal taxes because our pre-tax incomes are higher and therefore taxed at higher rates. Our higher pre-tax incomes are not adjusted for our high cost of living, so more of our real (inflation-adjusted) income is taxed away.
Excessive federal taxes on New York are not only unfair, they damage our economy. As more of our dollars are used for spending in other states, we have less to spend in our stores, and less to invest in our homes and our businesses.
During the last 20 years, New York has grown jobs at 33% of the national average. The 10 states with the lowest federal tax burden grew jobs 48% above average. The outflow of New York dollars was followed by jobs. Families were separated; congressional representation declined.
New York now sends $54 billion more each year to Washington than in 1992. But while New York has been a federal cash cow, the Clinton administration cut real federal spending in New York by 1% while increasing it 7.4% in other states.
Yet Hillary Clinton has said she views the 1993 tax increase as a sound economic plan, while criticizing tax cuts as risky spending. She could not be more wrong, and in fact is forced to rely on statistics dating to the Cuomo years to badmouth the New York economy. She should tell the truth: Upstate does not “still rank 45th in the nation in job growth”; it ranks in the top 20, largely because of our across-the-board tax cuts.
The bottom line: The straightforward Lazio plan would leave New Yorkers with more dollars in their pockets, and it would help to create jobs so young New Yorkers could build careers close to home, like other Americans. The Clinton plan would do neither.