First thoughts on “Tax-Free NY”

by E.J. McMahon |  | NY Torch

Never mind...The one promising new wrinkle in the upstate economic development plan unveiled today by Governor Andrew Cuomo is the offer of full (if impermanent) exemptions from state business and personal income taxes, as well as sales taxes, to firms that expand into designated Tax Free Zones at colleges, universities and “strategically located state-owned” properties. That’s a broader and potentially more attractive incentive than the array of targeted tax credits the state offered in the past, while avoiding some of the more egregious abuses of the now-defunct Empire Zones program.

However, it’ll take much more than this plan to give upstate the jolt it needs.  In the final analysis, highly touted “economic development” programs built on a promise of significant tax relief ultimately beg the same question: if our taxes are such a hindrance to growth, why not reduce them for everyone?

A more daring approach, for example, would be to simply phase out the state corporate franchise tax entirely throughout the 50-county upstate region, for all businesses operating there, whether new or existing.  Cuomo could make a sizable down payment on such an approach by canceling the recent multi-year extension of an $440 million annual state tax subsidy giveaway to film and TV producers.  As things now stand, the governor and Legislature are still taking baby steps towards phasing out corporate income taxes solely for manufacturing firms–which, thanks to state investment credits, already tend to pay at a reduced rate. (Manufacturing “production inputs” already qualify for broad sales tax exemption in New York.)

The idea of the new initiative is to replicate the partnership between the private Sematech consortium and the College of Nanoscale Science and Engineering at the State University at Albany. But that project also was the recipient of massive and concentrated taxpayer subsidies, which are not part of this initiative–and should not be.

For now, we’re still talking about relatively small areas: 57 upstate SUNY campuses, plus up to 200,000 square feet of adjoining area (a little less than five acres) at each campus. Private universities could be eligible for designation as partners in tax-free zones totaling 3 million square feet, which equates to 68 acres for all of upstate New York.

Sure, the “tax free” promise should be enough to entice some firms into partnerships with some colleges and universities.  But given the reams of red tape that will necessarily apply to projects in one of these relatively small zones, including the requirement that each project be tied to the “mission” of the college or university involved, the initiative is highly unlikely to generate growth on a game-changing scale.

The program will be open to “companies with a relationship to the academic mission of the university, new businesses, out-of-state businesses that relocate to New York, startups and existing businesses that expand their New York operations while maintaining their existing jobs.”Existing, taxpaying New York competitors of such companies won’t be cheering.

In a press release, Cuomo’s office touts the initiatives as “continu[ing]  the Governor’s work to reverse New York State’s reputation as the “tax capital” of the nation.”  The release goes on:

Since taking office, the Governor has cut middle class tax rates to their lowest rates in 60 years, enacted the state’s first-ever property tax cap, eliminated or greatly reduced the MTA payroll tax for nearly 300,000 small businesses, and provided middle class families with a child tax credit.

Yes, you read that right: they actually implied that the $350 pre-election check-in-mailbox gimmick is going to help reverse New York’s high-tax reputation.

Unfortunately, as far as the state’s image is concerned, it’ll take a lot more than the white noise of today’s announcement to drown out the negative signal sent to entrepreneurs by the tax-hike extenders in New York’s recently enacted 2013-14 budget, not to mention the impending minimum wage increase.

- E.J. McMahon is the President at the Empire Center for Public Policy.