A Disappointing Tax Deal

Mar 21, 2013
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New York is on track to pass an on-time budget that appears to limit state-funded spending to 2% growth for the 3rd consecutive year. That is good news for New Yorkers.

However, while the details are still emerging, one proposal is particularly disappointing.

When the temporary surcharge on the personal income tax was extended in 2011, leaders in Albany promised to create a commission to examine New York’s tax structure and make recommendations before the surcharge expires at the end of 2014. Now the commission’s work is being superseded by a shortsighted, politically expedient deal. State leaders have agreed to extend the temporary personal income tax surcharge for 3 years and use part of the new revenue for a mix of business tax credits and rebates for popular constituent groups. That deal is objectionable for three reasons:

  1. New York’s current tax structure calls out for more extensive reform. Its unfair nature is not rooted primarily in the state’s personal income tax, which even before the temporary surcharge ranked as the most progressive among the 44 states that have such a tax. Rather, it is the combined high and regressive set of state and local taxes, including sales and property taxes, which require reform. Untargeted rebates will not address the underlying causes of regressive local tax burdens.
  2. Extending the higher rate adopted in 2011 for the highest income level continues the state’s reliance on a small number of high earners and reduces New York’s competitiveness. In New York City high earners will be paying a state and local income tax rate of 12.7 percent, second only to California. This is unlikely to help New York’s recovery. In addition, extending a “temporary” surcharge explained as a necessity to help ameliorate a fiscal crisis and then repurposing the money for poorly targeted tax relief sends the wrong message to a cohort of New Yorkers who comprise an important part of the revenue base.
  3. New York faces persistent out-year budget gaps that should deter any inclination to spend significant sums. Even if state leaders had accepted all actions the Governor proposed in the Executive Budget and extended the current tax surcharge, the budget gap in fiscal year 2015-16 still would be close to $2 billion. Simply put, the money is not there to spend on newly created rebate and credit programs.

The tax changes do not take effect until fiscal year 2014-15. Before then the tax commission should be allowed to do its work and state leaders should reconsider this hastily crafted plan. 

 

By Carol Kellermann

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