State representatives continue to disagree on how to close the state’s multi-billion-dollar budget shortfall, as national economists weighed in this week on Democrats’ mounting push to increase taxes on the wealthy ahead of broad cuts to education and healthcare.
Gov. Andrew Cuomo and top state officials have discussed a growing multi-billion-dollar budget gap due to unprecedented spending and revenue loss caused by the coronavirus pandemic. The state expects a $14 billion revenue shortfall this year, and nearly $16 billion next year as the COVID-19 public health crisis continues.
“We have our work cut out for us,” Assembly Minority Leader William Barclay, R-Pulaski, said in a statement Friday afternoon. “Correcting New York’s massive budget shortfall is going to take a thoughtful, concerted effort that features a combination of eliminating wasteful spending, securing federal aid and an emphasis on common-sense prioritizing.”
Barclay cited a recent American Legislative Exchange Council report that ranks the state as having the worst economic outlook in the U.S., largely due to its tax structure and outstanding debts. Pressure is mounting from progressives and Democrats to alter state tax code and increase payments for the wealthiest New Yorkers, including state billionaires and millionaires.
National economists held a news conference Wednesday to highlight the fiscal and social benefits of raising taxes on New York’s wealthiest to close the growing budget deficit.
Taxing the rich will help address the state’s inequality crises, said Emmanuel Saez who helped create the wealth tax plans central to Sens. Bernie Sanders’, I-Vt., and Elizabeth Warren’s, D-Mass., presidential campaigns.
“Federal help is now unlikely before 2021, at best,” Saez said. “Cutting public spending, we further exacerbate the economic crisis and hurt the future of the state.
“Increasing taxes on the rich to preserve public spending helps the state economy in this crisis.”
Economists argued the state cannot afford to wait for federal aid.
The state has 18% of U.S. billionaires and 11% of its millionaires, Saez said. The top 1% of the nation’s wage earners represent about 20% of its total income.
“The top 1% in New York make 30% of total New York income,” said Saez, adding the wealthiest New Yorkers made 10% of the state’s income in the 1970s.
Barclay on Friday discouraged against tax increases for New Yorkers in this season of economic hardship.
“It is also extremely important that any recovery efforts do not put the burden on state taxpayers and businesses already on the brink of catastrophe,” Barclay said. “In tough financial times, New York Democrats have typically sought to tax their way out of budget shortfalls.”
State income taxes successfully tax millionaires, but not the ultra wealthy, Saez said, as many billionaires have wealth in capital gains where income tax has not been paid.
“We’ve estimated billionaires actually pay a lower tax rate for their true income than other income groups for federal, state and local taxes together,” Saez argued. “A New York billionaire’s tax directly addresses tax injustice and addresses those unrealized capital gains.”
Cuomo on Tuesday suggested a national tax on billionaires and millionaires, but repeated his disapproval for a state tax hike on the wealthy.
“You want to do a billionaires tax? Raise taxes nationwide,” Cuomo said, adding a millionaires tax hike should also be done at the national, but not state, level.
“Before you talk about tax increases in New York City or New York state, let’s first focus on the better options,” he said. “I don’t want to suggest that I am accepting any position other than the fair position, which is the federal government provides funding.”
Without federal funding, Cuomo said lawmakers will have to raise revenues.
“If you have to raise revenues, you better do it nationally,” he said. “Why would you make one state raise taxes and put itself at a competitive disadvantage with the other states?”
State Democrats have discussed several options to raise taxes on the wealthy, including raising income taxes for households that make more than $500,000, an added tax on luxury homes or apartments valued over $5 million that are not a family’s primary residence or taxing state billionaires.
Sen. Robert Jackson, D-Manhattan, sponsors a bill to extend the top state income tax rate to 11.82% for taxpayers whose New York taxable income is over $100 million and directs the revenue to foundation aid. Sens. Jamaal Bailey, D-Bronx; Brian Benjamin, D-Harlem; Alessandra Biaggi, D-Bronx; and Leroy Comrie, D-Queens, co-sponsor the legislation, which was referred to the Budget and Revenue Committee in January.
Educators, advocates, teachers and Capital Region Democratic lawmakers rallied outside the Capitol on Thursday, demanding Cuomo and the state Budget Division fully fund education. Hundreds of teachers in smaller urban districts were laid off this week as classes resume and districts face increasing budget gaps.
State officials anticipate widespread to slash 20% from state healthcare, education and to localities, and are expected to release a spending reduction plan this month.
“If New York closes a $14 billion budget gap by cutting spending, it could cost the economy easily $35 billion this year,” said tax policy expert Kitty Richards, a fellow at the Roosevelt Institute. “Even during an ordinary recession, we should understand there should be no cuts to state services. State and local budgets are the bedrocks for state and local economies.
“We are thinking about this absolutely backwards.”
The state’s anticipated cuts will increase spending 35 cents on the dollar, compared to generating $1.15 in states and localities that increase taxes on the rich, Richards said.
“It really doesn’t have to be this way,” she said. “States can raise taxes ... Taxing the rich to pay for direct government spending during a recession creates direct economic growth.”
Cuomo expressed concern that higher taxes on the wealthy would encourage more New Yorkers to leave the state and New York City. Many of New York’s wealthy residents have left the city for their secondary homes as the downstate metro area have experienced a reduced quality of life with a surge in violent crime and more homeless and garbage on city streets.
“We don’t just have an economic deficit, we have a combination of factors that are hurting New York City,” Cuomo said Tuesday. “It’s that cluster of issues. ... Crime. Homelessness. Quality of life. They all have to be managed.”
The governor said additional taxes on the state’s wealthiest residents would be an additional factor deterring them from returning to New York. New York City is home to 113 billionaires — higher than any other nation in the world.
Cristobal Young, who has worked with tax administration officials in California, New Jersey and the U.S. Department of the Treasury, and authored “The Myth of Millionaire Tax Flight,” argued his research disproves Cuomo’s assertion.
Studies of federal tax return data show U.S. millionaires and billionaires tend to live in the Northeast in some of the nation’s highest-taxed states. Typically low-taxed states, such as Texas, Florida and Tennessee, do not have as many wealthy residents per capita.
“When the tides change, our top income earners, mobile billionaires... they are reluctant to migrate away from places where they’ve become highly successful,” Young said. “There’s no relation to state tax rates and where millionaires live.”
Americans who make less than $10,000 a year move the most often at a rate of 4.5% a year, Young said. Millionaires move at an annual rate of 2.4%.
“That’s almost half the rate poor people do — that’s lower than the middle class as well,” Young said. “...Income ties you to a place. The more successful you are in a place, the less likely you are to leave.”
Millionaires and billionaires are also more likely to be homeowners, own businesses, be married and have children, which also anchors a resident to a location.
State leaders must be prepared to act to address New York’s growing budget crisis while Congress remains deadlocked on the next coronavirus relief bill and providing aid to states and local governments, Barclay said Friday. The Assembly leader called for state lawmakers to reduce income, corporate and sales tax rates and eliminate regulatory burdens he said hurt job creators, stifling economic growth.
“It is clear there is much work to do, but our primary focus should be on the factors under our own control,” Barclay said. “...We have to start by paring down our budget and focusing on only what is absolutely needed. The only way New York will make it through this crisis — and years-long recovery effort — is with strong, unwavering leadership. Its representatives must collaborate to deliver on these solutions and that cooperative effort needs to start right now.”
Cuomo, lawmakers and advocates persist with their months-long call for federal relief to help close budget deficits plaguing U.S. states.
“The best option is for the federal government to do your job and give us the resources we need,” Cuomo said. “Otherwise, the national economy is going to suffer.”
The state had a deficit before the pandemic hit in March, Barclay recalled, which he attributed to the Legislature’s Democratic majority rule. In January, the state had $6.1 billion budget gap, largely attributed to a $4 billion deficit from Medicaid costs addressed in cuts to and restructuring of the program.
“Any potential boost from a robust national economy was squandered by out-of-control spending and costly budget gimmicks concocted under One-Party Rule,” Barclay said. “We can’t go back on that formula. Doing so would result in more harm than good.”
Cuomo will not give up on receiving funding from the federal government, he said, or Congress raising federal revenue.
“I’m not giving up that there won’t be some short-term federal relief just to get us to next year,” the governor said. “I’m not giving up that there’s couldn’t be short-term relief to get us to next year, and then you have a president next year who acts responsibly and a Democratic Senate that acts responsibly and doesn’t give us real financial help in January and February.”