September 4, 2013. In testimony before the Senate Standing Committee on Finance and the Senate Committee on Investigations and Government Operations, Frank Mauro, FPI’s Executive Director, expressed support for a thorough review of the tax system from a number of perspectives. He indicated that back in December 2011, Governor Cuomo and the legislative leaders joined in calling for a thorough review of the fairness of the New York tax system and agreed that fairness is one important basis for evaluating the workings of any tax system. But, he stressed that two other criteria—adequacy and stability—are also important. According to Mauro’s testimony, “It is difficult to say that one of these three criteria is more important than the other two. Governors and legislators have to try to achieve all three objectives simultaneously. The result is that making state tax policy is a very difficult balancing act.”
He also acknowledged that policymakers “yearn for a tax system that will encourage the creation and retention of jobs and broadly shared prosperity,” but cautioned that this is “easier said than done.” He pointed to the legacy costs of failed programs like the Job Incentive Board program and the Empire Zones program as evidence of the fact that “Just because a policymaker’s heart is in the right place doesn’t mean that the policies that he or she advances will work as intended.” He expressed hope that New York officials “have learned from these experiences and will be careful before launching new programs that can incur significant obligations with little to show for it.”
Mauro urged the Senate committees to remember two additional points. First, both sides of government budgets—the revenue side and the expenditure side—have an impact on the economy. We sometimes forget that government provides the basics—education, infrastructure, an effectively functioning legal system, clean water, fire protection, etc.—that allow the free market economy to flourish. Second, and very related to the first, the state-local tax system is one system, not two separate and independent systems. In the American system of government, it is the states that determine the division of labor between themselves and their local governments. New York’s tax system (like every state’s tax system) is a combination of some state taxes and some local taxes with some of those taxes being regressive and others being progressive. While it is interesting to examine the distributional impact or fairness of individual taxes, the much more important question is the fairness or distributional impact of the state-local tax system as a whole.
Among the other points emphasized in Mauro’s testimony were the following:
- A progressive income tax is good, not bad for the economy. It raises needed revenue in an equitable manner that does not reduce the resources available to families for meeting the cost of life’s necessities. A progressive income tax, for example, makes it possible to reduce the pressure on the property tax and to provide efficiently and effectively targeted property tax relief.
- While migration files show that New York had a high rate of net domestic out-migration from 2000 to 2010, the IRS’s bottom line income tax data shows that New York’s share of the highest income taxpayers and its share of the income of the highest income taxpayers increased over this same period. Over the ten year period, from 2000 to 2010, the number of federal taxpayers with Adjusted Gross Income (AGI) above $1 million increased 17.1 percent nationally but 38.9 percent in New York State; and the amount of these taxpayers’ AGI increased 20.8 percent nationally but 57.4 percent for federal taxpayers from New York.
- New York State should not provide tax subsidies for companies that outsource jobs or otherwise reduce employment in the state. Economic development tax breaks should only go to businesses that create and maintain good-paying jobs in the state.
- Loopholes and tax breaks that allow large, multi-state and multi-national corporations to pay proportionately less in state income taxes than small businesses should be fixed or eliminated. And the integrity of the Corporate Alternate Minimum tax should be restored so that large, profitable corporations are not able to reduce their tax liability below a reasonable percentage of net income.
- Provisions of law that allow investment management income to be taxed less than wages or other business income should be eliminated.
- New York State should reduce the pressure that it places on the local property tax by increasing revenue sharing (now called Aid and Incentives for Municipalities) and by increasing (on an “ability to pay” basis) the state share of the cost of both education and Medicaid.
- New York State should provide targeted tax relief to long-time residents for whom, through no fault of their own, property taxes on their primary residences have come to represent an inordinate share of their income.