New York’s recent budget deal is one step forward for middle class taxpayers but two steps back for small businesses.
The Empire State is notorious for its high taxes, but in a few years, it will give its middle class a break in the form of a small income tax cut. Small business owners, however, may not see as many savings, as lawmakers agreed to phase in a $15 minimum wage.
Under the proposed budget plan, couples filing jointly and earing $40,000 to $300,000 will see tax rates drop – from the current 6.45 percent to 6.65 percent – to 5.5 percent. The tax cut will begin to be phased in during 2018 and will take more than seven years to be fully implemented.
Gov. Andrew Cuomo (D-N.Y.) said taxpayers would save almost $6.6 billion in four years. At the start, it will benefit 4.4 million taxpayers, reaching 6 million after the full phase-in.
Although Assembly Democrats were in favor of a middle class tax cut, they also wanted a tax hike for higher income taxpayers. Despite pleas from a few wealthy New York millionaires, a permanent “1% Plan for New York Tax Fairness,” which would raise the top income tax rate to nearly 10 percent, is unlikely to pass.
The middle class income tax cuts will come at other costs. Cuomo, who did not include the tax cuts in his January budget proposal, threw support behind the cuts as a bargaining chip for Republican legislators to approve a $15 statewide minimum wage. The legislature seemed to agree Thursday with negotiations.
Making the $15 minimum wage uniform across the whole state remains a sticky issue, as upstate New York does not perform at the same economic level as New York City. As part of the deal, the Big Apple will phase in the increase over three years and Long Island and Westchester County will over six years, beginning Dec. 31. Other counties will implement a $12.50 rate over five years. This may increase to $15 after state review.
In a piece for Forbes, Tim Worstall recently refuted claims that this minimum wage hike would result in new jobs and higher wages and estimates that job losses due to higher prices will actually result in job loses totaling 65,000. It should also be noted that the minimum wage deal has no exceptions for small businesses.
New York is ranked the second-worst state for business tax climate by the Tax Foundation. This proposal will do little to alleviate this near-bottom of the list ranking.
New York’s $156 billion budget is a record high, growing by $10 billion from last year. Instead of reigning in out-of-control spending, Cuomo has boasted that New York’s budgets have grown by 2 percent or less in the last five years. The state’s irresponsible spending will hit taxpayers, as state debt continues to spiral out of control. Last month, State Comptroller Thomas DiNapoli announced the state debt has reached $63 billion, with only $3 billion being approved by voters.
The tax cuts may, however, help reverse the trend of New Yorkers leaving for lower-tax states. Despite Cuomo’s rejection of ATR’s analysis last year that the state’s uncompetitive business and tax environment was largely the cause of the mass migration of taxpayers to states like Florida, his most recent tax proposal seems to indicate he’s coming around to understanding that the status quo isn’t working for New York.
New York is the second state to seek to raise the minimum wage to $15 after California approved it Monday. It is crucial to remember that New York and California have some of the highest costs of living in the U.S., so this should not set a precedent for other states or the federal government to consider the $15 minimum wage.