NY Budget Must Avoid Tax Hikes, Attacks on Jobs, as State Fights Off Coronavirus

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Posted by Doug Kellogg on Tuesday, March 31st, 2020, 4:33 PM PERMALINK

New York State is in the middle of an unprecedented crisis – the coronavirus pandemic. New York City is one of the epicenters of the outbreak in the U.S.

Government is not immune, as multiple state legislators have tested positive for COVID-19, adding Senator James Seward to the list on Monday. Despite all this, state lawmakers still have a budget deadline of April 1 (though rules to allow remote voting could add flexibility to that).

New York’s standard budget process is not exactly transparent, with closed-door negotiations and dysfunctional committees. This year, it has become more mysterious as the capitol building has been cleared out to stop the spread of coronavirus.

On top of that, what was already a massive $6 billion budget gap, is now estimated to be $15 billion due to coronavirus’ impact on the state economy.

Major threats at the start of session included an “ultra” millionaire’s tax, destruction of the independent contractor system (following the lead of California’s AB 5), and a digital services tax (similar to Maryland’s ill-advised policy).

While the last thing government should be doing is taking more of people’s hard-earned money when they need it in a crisis, that does not mean the temptation is not there. Many legislators remain interested in adding new tiers to the millionaire’s tax.

Left-leaning groups like Vocal-NY, the Working Families Party, Indivisible, and Citizen Action, are pushing for any millionaire’s tax hike proposal to pass. A long list of these organizations and others just sent a letter to Gov. Cuomo and leadership urging adoption of two bills from Sen. Robert Jackson which would enact ultra-millionaire’s taxes. One of which is a $4.5 billion tax hike that creates new high-tax rate brackets for people earning over $1 million, $5 million, $10 million, and $100 million annually.

Even this massive tax hike does not come close to closing a $15 billion gap, or even close the initial $6 billion gap – and that’s assuming everyone it targets would stay put and pay, an unlikely scenario.

A proposal to create a digital services tax (S6102/A9112) has not gained momentum. This awful concept would impose extra costs on businesses that would hammer consumers too, while triggering legal challenges as it violates the Internet Tax Freedom Act.

As Empire Center’s E.J. McMahon outlines, New York’s heavy reliance on capital gains taxes leaves the state vulnerable to significant revenue loss. Post-coronavirus, “the decrease in capital gains income is likely to be more on the order of 40 to 50 percent”, McMahon writes.

New York cannot make the tax environment worse. It is already too burdensome, ranking first for state and local tax burden and collections, according to the Tax Foundation. The state’s affordability crisis has driven a massive exodus, and population loss in recent years.

Gov. Cuomo has not expressed interest in increasing taxes, and his budget proposal maintains middle class income tax cuts that passed a few years ago with a multi-year phase-in plan.

Legislators must hold the line on tax increases to avoid driving more people to leave the state. The federal emergency coronavirus bill will send around $40 billion to New York State. U.S. taxpayers are already sacrificing. Though this money is aimed at coronavirus related costs, it does also include $1 billion for education.

Coronavirus has also highlighted how often government gets in the way of jobs and innovation. Americans for Tax Reform continues to track rules and regulations that have been relaxed to make it easier for services to reach people.

Unfortunately, one set of regulations that has not been relaxed is California’s misguided attack on independent contractors, AB5, a model that Governor Cuomo sought to emulate in New York.

There is no excuse to pursue this policy after its disastrous consequences have been made clear by California Untold numbers of jobs have been lost, some through layoffs at outlets like Vox and SB Nation, others as California freelancers lose work and clients, potentially forcing them to leave the state. California has also been sued over AB5 by the American Society for Journalists and Authors (ASJA).

With many industries having exemptions to the law, trucking companies getting a restraining order on complying, and now a successful effort to place an initiative on the ballot that would reform the law, it is clearly a failure.

Legislation to recreate this disaster in New York, S6699A, has not moved, and legislators should keep this job-killing proposal stalled.

Also on the labor front, Gov. Cuomo proposed a reckless expansion of the state’s prevailing wage law into private construction. This is a direct attack on non-union options that will cut them out of projects, and drive up costs for taxpayers in the process. Firms will be driven out of business, and jobs will be lost at a time when New York desperately needs more of both.

This would be triggered if only 30% of funding comes from government incentives – not even direct spending. Worse, a board appointed by the Governor could change the rules.

Unshackle Upstate is leading opposition efforts, and highlighted a Weitzman Group analysis that found “an expanded prevailing wage mandate will increase private construction costs by an average of 30%.”

Medicaid was a major factor driving the $6 billion gap, and remains in need of reform. The Governor charged a task force with finding savings in Medicaid, their sensible recommendations still only amount to a $1.9 billion reduction in spending growth, Bill Hammond with Empire Center explains.

To deal with the gap, Medicaid will have to be cut further, as will education spending.

New York consistently increases education aid in its annual budget, and despite spending among the most per-pupil gets middling outcomes. The education establishment demanded billions of dollars in aid increases this year, while Governor Cuomo proposed spending over $800 million.

Some trimming will be needed, but again, the federal response allots over $1 billion for education.

Also keep an eye out for Governor Cuomo’s effort to use a “climate emergency” to take away localities’ ability to determine taxes and approvals for wind and solar projects.

The deck is already stacked in favor of these projects being imposed on localities in New York. But under the changes highlighted in a recent New York Post op-ed by Jonathan Lesser with the Manhattan Institute, taxes would be determined by the state and local government could impose no rules or restrictions on where wind turbines or solar facilities could be built.

There is much at stake as New York’s final budget comes together in the most difficult of circumstances. Protecting taxpayers will best prepare the state to recover economically as coronavirus subsides.

Photo Credit: Albany.org

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