Disentangled from his rambling and infrequently hyper-partisan State of the State Address, the fiscal fundamentals of Gov. Andrew Cuomo’s proposed state budget largely quantity to extra of the identical insurance policies he has pursued up to now — for higher and worse.
On the broadly constructive aspect, Cuomo is as soon as once more holding development in New York’s principal working budget beneath 2 % — though, as standard, the true improve would look bigger if not for accounting gimmicks.
Another constructive: Cuomo’s budget package deal contains language that may make everlasting his historic and transformative native property-tax cap, first enacted as a brief measure in 2011.
At the identical time, the governor is pushing insurance policies that may make it tougher for localities to carry down taxes. He needs to slice state assist to cities, cities and villages by $59 million — a petty transfer Cuomo might intend to make use of as leverage to win legislative approval for the everlasting tax cap.
He is including insult to that damage by in search of a long-term extension of the state legislation permitting police and fireplace unions to push their contract disputes into binding arbitration, which makes it tougher for municipalities to regulate their largest expenditure.
Worse, Cuomo needs to perpetuate the state’s lopsided reliance on high-income taxpayers, compounding monetary dangers for the long run.
In a worrisome word, the state government budget’s monetary plan experiences that the private earnings tax, the state’s largest single income supply, has “abruptly” dropped a half-billion bucks under projections because the finish of December.
This compounded the issue of closing a projected $3 billion budget hole for subsequent 12 months, a troubling reflection of the structural imbalance between state spending and revenues, which has endured by means of an extended financial enlargement beneath a governor who loudly stresses his dedication to spending restraint.
So what’s occurring? The monetary plan cites rising market “volatility in the second half of 2018” that was “driven in part by rising interest rates, trade tensions and instability in government institutions at home and abroad.”
The plan means that there have been “behavioral changes by individual taxpayers and firms” in response to the brand new federal cap on state and native tax deductions.
The shakiness in private earnings tax receipts comes at a time when New York is extra reliant than ever on this supply, practically 40 % of which is paid by the highest 1 %. That makes the centerpiece of the governor’s income agenda much more questionable.
Cuomo had signaled in December that he deliberate to hunt an extension of the 9-year-old “temporary” millionaire tax, first enacted as a stopgap measure throughout the Great Recession and most not too long ago prolonged for 2 years in 2017. The tax raises $4.5 billion yearly and is scheduled to run out Dec. 31.
The governor now needs to lengthen the added tax for one more 5 years, bringing the state a step nearer to its highest everlasting charge because the 1980s. Yet his personal monetary projections present that, if he holds spending development to 2 %, he may part out the surtax somewhat than push it into the mid-2020s.
In a transfer with no precise budget influence, Cuomo is also proposing for a second straight 12 months that New York triple its tax on funding positive aspects handled as “carried interest” earnings by non-public fairness and hedge fund companions. This has been a controversial challenge for years — however on the federal degree, the place capital positive aspects are taxed at a decrease charge. New York’s private earnings tax already taxes all forms of private earnings on the identical charge.
If enacted in New York alone, the carried-interest tax would drive affected corporations throughout the closest border. Which is why the proposed improve would take impact provided that enacted in 5 neighboring states.
That received’t occur anytime quickly: Flat-broke Connecticut couldn’t afford to drive away what’s left of its finance sector, and Pennsylvania nonetheless has a Republican legislature.
But whereas the carried-interest tax hike is an empty gesture, it’s additionally a pointedly hostile one, aimed toward a small subset of residents whose particular person tax payments can mount to hundreds of thousands of a 12 months.
Promising to soak excessive earners who’ve misplaced their state and native tax deductions might match nicely with what Cuomo likes to border as an aggressively “progressive” agenda — however for high-spending New York specifically, it’s additionally a dumb technique.
E.J. McMahon is analysis director on the Empire Center for Public Policy and an adjunct fellow on the Manhattan Institute.