Tax Reform

State of the State: New York

New Yorkers face a heavy tax burden, causing the state’s economic outlook to rank dead last in the nation. In fact, the best New York’s economic outlook has ever been in all past eight editions of Rich States, Poor States is 49th. Certainly, lawmakers have plenty of work to do to make the Empire State more competitive. While Governor Andrew Cuomo proposed a tax cut for small businesses and an efficiency competition in his State of the State and budget address, the governor also discussed increasing the minimum wage and increasing education spending.

The minimum wage increased from $8.75 per hour to $9.00 per hour on December 31, 2015 due to legislation passed in 2013. However, the governor supports raising the minimum wage to $15.00 per hour for all workers in New York City by December 31, 2018 and by July 1, 2021 for workers in the rest of the state. Furthermore, Cuomo announced that the State University of New York (SUNY) will increase the minimum wage for their employees to $15.00 per hour, although he did not specify a time frame in his address. Research shows that despite the best of intentions, minimum wage increases have unintended economic consequences for working families and young people. Studies demonstrate that while some workers may see their income rise when the minimum wage increases, others see their hours cut or lose their jobs.

Cuomo also discussed reducing taxes for certain small businesses. For small businesses that file under the corporate tax code, the governor proposed cutting the net income tax rate from 6.5 percent to 4 percent by January 1, 2017. Small businesses that qualify for this cut must have fewer than 100 employees, with net income below $390,000. For small businesses that file under the personal income tax code, such as sole proprietors and other pass-through entities, Governor Cuomo proposed increasing the income exemption from 5 percent to 15 percent. Partnerships, S-corporations and LLCs can also qualify, as long as some of their business income is from a business entity with less than $1.5 million in gross receipts, and their total business income is below $250,000.

The governor wants to have an efficiency competition with local governments. Counties, cities, towns and villages are encouraged to create consolidation partnerships to help reduce the property tax. The consolidation partnership that has the greatest reduction in property taxes will receive $20 million from the state.

Finally, in regards to spending, Cuomo discussed large spending increases in education and infrastructure.  The governor wants to increase K-12 spending by $2.1 billion over the next two school years. According to the governor’s office, New York already spends more per student than any other state in the nation, almost double the national average. According to the State Education Report Card, there’s a big difference between spending and student performance. In fact, data show that more spending does not lead to better outcomes for students.  Cuomo also wants to spend $26.1 billion total, the largest contribution in the history of the state, to the Metropolitan Transportation Authority (MTA) Capital program. However, a recent audit released by New York Comptroller Thomas DiNapoli criticizes the MTA for failing to address the root causes of massive delays, disruptions and decrease in quality of  in service (this is the home subway of Pizza Rat). In fact, the delays are so bad that even the MTA is lowering its expectations for on time service. It is highly unlikely that MTA can wisely steward $26.1 billion hard-earned taxpayer dollars to get the results that commuters need.

Governor Cuomo’s state of the state and budget address contained lowlights and highlights for New Yorkers.  Instead of economically damaging proposals such as hiking the minimum wage and increasing spending, New Yorkers deserve better. New York’s high business and personal income taxes and high tax burdens are an obstacle to opportunity, which perhaps could explain why a staggering 1,519,449 New Yorkers on net  have left the state over the past ten years alone—the biggest outmigration of any state over the last decade. While providing tax relief for small businesses is certainly a small step in the right direction, much more work needs to be done to make New York more competitive again. Low tax rates with broad bases would provide every New Yorker with more opportunities to prosper.

This is an entry in the ALEC Center for State Fiscal Reform series, “State of the States 2016,” which will perform analysis of tax and budget issues raised in every state of the state address delivered by America’s governors. Check back frequently over the coming weeks to see the results for your state.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth