It is a pleasant surprise for New Yorkers that Governor Cuomo is finally acknowledging some realities with regards to tax policy.
It started after the Governor and New York City Mayor Bill De Blasio announced that Amazon was selecting Long Island City for its HQ2, lured by the $1.525 billion in incentives offered to the company by the state and city. In announcing the deal to the public, Cuomo defended these incentives, that without them, Amazon wouldn’t locate in New York. Cuomo stated: “It’s not a level playing field to being with. All things being equal, if we do nothing, they’re going to Texas.” That’s correct Mr. Governor. New York ranks 48 out of 50 in the Tax Foundation’s 2019 State Business Tax Climate Index and New York ranks #1 in outmigration to other states. Talent is leaving the state at an increasing rate.
The next recognition came in the form of a “serious […] heart attack” when Cuomo and Democratic Comptroller Thomas DiNapoli announced that New York tax receipts collected were $2.3bn less than predicted for December and January. Although the specifics weren’t provided, one can assume this decline is due to high wealth residents shifting income to lower tax jurisdictions. Cuomo acknowledged such in his press conference: “If even a small number of high-income taxpayers leave, it has a great effect on this tax base. You are relying on a very small number of people for the vast amount of your tax dollars.” Fact check: True. The highest-earning 1% of New Yorkers already pay around 50% of all PIT receipts and the Governor has ambitiously included an extension of the “millionaire’s tax” through 2024, an unsound move given the outmigration situation described above. But Cuomo does realize there is no more room to generate revenues. He states: “Tax the rich, tax the rich, tax the rich — and then the rich leave. And then what do you do? It would be the absolute worst thing to do right now. At the same time, you don’t have the ability to reduce taxes on the rich because that would just expand the shortfall.” He goes on: “They are investors, they have accountants, they are making informed decisions […] This is going to be the tipping point and people will now be making a geographical change.”
As the Democratic Party moves further to the left, Governor Cuomo’s aides should warn him not to state these constraints out loud. For the Democrats, there is an ever-flowing river of wealth to siphon from. Anyone who states the contrary is labeled immoral. The mainstream policy is, in the Governor’s words, “Tax the rich, tax the rich, tax the rich.”
Although the Governor seems to realize the dire state of New York finances, he ultimately blames it on the Republican tax bill, specifically the new limitation on SALT deductions up to $10,000. Governor Cuomo states that residents in the top bracket will now face a combined tax rate of 50.4% because of the deduction changes. He contrasts this to the state of Florida saying, “A taxpayer in Florida would see no increase, probably would see a decrease, and Florida also has the advantage of no estate tax.”But that is the point Mr. Governor. New York State imposes a punitive tax regime on its residents not present elsewhere in the country. The average SALT deduction in New York is ~$22k, the highest of any state. This is a sign of high property values but also the high taxes levied against these assets. So yes, income is being shifted to low tax jurisdictions outside New York, a behavior encouraged by the Republican tax bill, but ultimately the result of the penal tax code.
What Cuomo doesn’t realize is that most New Yorkers won’t buy into his blame game. The latest jobs report for New York State shows healthy job growth and the lowest unemployment rate on record at 3.9%. Most New Yorkers gross wages are going up, which in theory should generate more tax revenue for the state, but tax revenues are declining. Most will wonder where their taxes are going.
New Yorkers can only hope Cuomo takes another look at the situation and comes to the correct diagnosis. It is time for the Governor to take a hard look at his budget when he makes amendments through the next 30 days. The Governor needs to end his over-reliance on the top 1%, re-imagine corporate tax policy to encourage business creation without costly taxpayer subsidies, and focus on improvements in quality of life items to stop outmigration. Otherwise, New York will continue down its path toward a bleak future, where deficits are funded through increased taxes on the middle class or through borrowing that will leave the state insolvent in the years to come.