“No new taxes.” Not so fast

by E.J. McMahon |  | NY Torch

power-lines1Governor Cuomo* is running TV commercials declaring that his proposed 2013-14 budget features no new taxes — a claim also widely reflected in most news media coverage of the budget.

It’s not quite true, however. Compared to what is now written into permanent state law, Cuomo’s budget would, in fact, raise $325 million more next year, and $2.2 billion over the next four years, by extending a pair of almost new taxes — temporary measures, first enacted in 2009, that were supposed to expire by the end of the next fiscal year.

Almost-new tax #1

The biggest of these tax hikes maintains, for five years beyond the scheduled March 31, 2014 expiration date, a full 2 percent “assessment” on electric, water and gas utility bills across the state.  The assessment, authorized under Section 18-A of the Public Service Law and dating back to the 1930s, was originally established as a nominal charge to support the operations of the state Public Service Commission.  Since the 1990s it has been expanded to provide dedicated funding for units of nine additional state agencies — including some far afield of energy policy, such as the Office of Real Property Services and the Department of Homeland Security.

The underlying permanent-law 18-A assessment rate is 0.33 percent, so the 2009-10 budget represented a temporary 500 percent increase, designed (at the time) to raise almost $600 million a year. The economic slowdown, drop in energy demand and in gas prices since then has brought the net, full-year value of the assessment to $509 million. That’s $509 million a year on top of what are already some of the highest utility rates in the country, with an especially heavy impact on industrial customers. So, for example, a continuation of the added assessment will tack another $6.6 million onto Con Edison’s proposed rate hike for New York City and the surrounding area.

Sensitive to the economic impact of adding to utility bills, Senate Republicans last year introduced and passed a one-house “NEW JOBS-NY” package that called for the early elimination of the added 18-A assessment, which a May 30, 2012, Senate press release described as a “dramatic [and] disastrous tax hike [that] took $1.7 billion out of the economy and chased businesses and jobs out of New York.” The same release quoted Senator George D. Maziarz, chairman of the Energy Committee, as predicting that eliminating the utility assessment “is necessary and will bring a large boost to the state.” He added:

I was against the installation of this tax from the beginning and I’m glad that we will finally get rid of it and bring relief to local businesses.

In his generally positive prepared statement in reaction to Cuomo’s proposal, Senate GOP Leader Dean Skelos repeated the no-new-tax-or-fee spin, but also said:

“We should take this opportunity to look at reducing taxes to put more money back into the pockets of hardworking families, allowing the 18-a energy assessment to expire as scheduled, and renewing our commitment to businessmen and women looking to start or grow a business in New York.” [emphasis added]

Almost-new tax #2

The second almost-new tax hike in the new Cuomo budget would hit the state’s highest income households — those earning $10 million or more — by extending for three more years a provision denying them a portion of their tax deductions for itemized contributions to charity. Under permanent law, filers with incomes over $10 million can only claim half their charitable deductions on New York income taxes, but the temporary law denies half of what’s left (25 percent). These folks give a lot, so the money involved is a non-trivial $140 million on a full-year basis.

When should the extension of a sunsetting measure be considered a tax increase?  Here’s what then-Attorney General Andrew Cuomo had to say in 2010 about a temporary three-year increase in state income taxes for high-income earners, then due to expire at the end of 2011:

“I was against it at the time, and I still am. It’s a new tax. It was supposed to sunset. If it doesn’t sunset, it’s a tax.”

So by his own definition, Cuomo did, indeed, increase taxes when he pushed through a $2.5 billion partial and temporary extension of the income tax hike in December 2011, although (echoed by Senate Republicans) he has sought to portray it as a “tax reform” and a middle-class tax cut.

While the no-new-taxes meme stands on shaky ground, it is so firmly entrenched in public perceptions of the budget that at least one left-of-center blogger is attacking Cuomo as a “faux-Democratic standard-bearer for corporate friendly anti-tax conservatism.”

Good news, Daily Kos fans: he isn’t.

[* More specifically, the state Democratic Committee]

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