State of the State messages by New York governors customarily lay out general goals and priorities, rather than specifics. Even in general terms, however, there is a striking contrast between Governor Cuomo’s latest State of the State and his first annual message to the Legislature, which he delivered five days after taking office 10 years ago.
In his initial State of the State speech to hundreds of attendees in Albany’s Empire State Plaza Convention Center on Jan. 5, 2011, Cuomo’s emphasis was on improving New York’s economic competitiveness in the wake of the Great Recession. The governor emphasized what the state should and could start doing for itself, as summarized in one memorable and widely quoted passage:
We have to hold the line on taxes for now and reduce taxes in the future. New York has no future as the tax capital of the nation. Our young people will not stay. Our business will not come. This has to change.
Today’s speech, delivered virtually from a near-empty War Room in the state Capitol, unsurprisingly focused on the impact of the COVID-19 pandemic. This time, however, any Cuomo references to self-initiated state recovery policies took a back seat to blame-shifting and demands for recompense from the federal government:
What is our state of the state? New York is suffering and New Yorkers are tired of being abused and demand that Washington stops causing damage and starts resolving the damage they caused.
We expect SALT to be removed from our wounds fully and quickly, and to be compensated for our economic loss. We expect basic fairness from Washington, finally.
The “SALT” in question is the $10,000 cap on the state and local tax deductions, part of the Tax Reform and Jobs Act passed by congressional Republicans at the end of 2017. The compensation Cuomo seeks would take the form of a large dollop of unrestricted aid for New York’s state and local governments in the multi-trillion dollar coronavirus relief package that President-elect Biden has promised to make a top priority.
With federal deficits expanding well past record levels in both absolute and relative terms, how should Biden and congressional Democrats pay for additional aid? Cuomo’s answer:
If the Federal government needs revenue, it should raise income taxes on the wealthy to finance the state’s resurgence from this national devastation. That is basic economic justice and economic prudence.
Raising taxes on the wealthy as a matter of “economic justice” is, of course, a major objective of the Democratic supermajorities in both houses of the state Legislature and advocacy groups bankrolled by labor unions, whose “tax the rich” demands Cuomo has been resisting.
In another contrast to 2011, Cuomo today pointedly did not pledge to hold the line on New York’s own taxes. Rather, he complained that “extraordinary and negative measures” including a further tax hike on New York’s millionaire earners would not be enough to close what he described a “$15 billion budget gap”—a figure that greatly exaggerates the true extent of the current shortfall, in part because it doesn’t count substantial aid the state has already received.**
It’s no surprise to hear the governor asking yet again for federal help to close his post-pandemic deficit. But it’s self-defeating and self-contradictory to pretend that this would redress a long-standing imbalance in the flow of funds between New York and Washington.
After all, the federal government’s progressive income tax structure and means-tested reimbursement formulas for programs such as Medicaid are expressly designed to redistribute income from the wealthiest Americans to the poorest (and working poor). With its large concentration of wealthy taxpayers, New York perennially sends more to Washington than it gets back. Raising taxes on the wealthy will inevitably increase, not shrink, New York’s balance of payment deficit, because more of the nation’s wealthiest taxpayers live in New York. This will be true even if the SALT cap is repealed. Unless, of course, the state’s own tax and spending policies ultimately succeed in driving away so many high earners that New York becomes a more “average” state—in which case Albany will be broke.
Moreover, as noted in this recent Tax Policy Center analysis, any move by the feds to repeal the SALT cap (before the scheduled 2025 expiration of the entire 2017 tax law, that is) “would add about $76 billion to the federal budget deficit in 2020 and primarily benefit high-income households.” If New York’s Sen. Chuck Schumer, the new Senate majority leader, can persuade his fellow congressional Democrats to restore unrestricted SALT deductions, they will almost certainly have to pay for it with other deduction limits and rate hikes aimed at top income brackets, which will also disproportionately hit New York’s tax base.
As for what the Cuomo administration itself might propose doing to “jumpstart” a state economy clobbered by pandemic restrictions, Cuomo promised to “commence the most aggressive construction and transportation development program in the country: new air, road and rail systems upstate and downstate; more affordable housing; and economic development to create jobs, jobs and more jobs.”
Specifics of that program will be “announced in the coming days,” according to a press release from the governor’s office.
** Among other things, Cuomo said: “If we raise [income] taxes to the highest income tax rate in the nation, on all income over $1 million … we would only raise $1.5 billion.” That figure appears to roughly correspond to a possible static revenue gain from raising the combined state and local rate in New York City from its current 12.7 percent to the California top rate of 13.3 percent, now the highest in the nation—without account for offsetting revenue losses due to taxpayer behavior. Adjusting for behavioral changes, such a tax hike would raise barely half as much, based on economist Joshua Rauh’s research in California.