Defending the new state budget’s three-year “millionaire’s tax” extension in a Newsday op-ed today, Governor Cuomo writes: “The extension doesn’t take place until 2015, the year our financial projections show a $5-billion budget gap. By extending this tax, which generates $2 billion, the state addresses the future gap.”
Huh? Where did that “$5 billion budget gap” come from?
The last financial plan update issued by the governor’s Division of the Budget (DOB) projected a shortfall of $3.6 billion for fiscal 2015-16, which would have been the first full year affected by the previously scheduled December 31, 2014, expiration of a 29 percent temporary income tax hike on individuals earning more than $1 million and couples earning more than $2 million. DOB customarily bases its long-term financial plan on the law in effect at the time the plan update is issued — meaning the $3.6 billion budget gap assumed the tax increase would expire.
If the state’s financial projections were showing a $5 billion budget gap for 2015-16 before the new budget was adopted, that would mean the fiscal outlook has gotten darker since February. In any case, a $2 billion tax hike won’t “address the future gap.” It will still leave the state with a 2015-16 gap of $3 billion, which is not much of an improvement over the February plan.
Perhaps the $5 billion was the sum of the projected 2014-15 budget gap of $2 billion and the 2015-16 gap of $3.6 billion? Maybe, but that’s not what the governor’s op-ed would imply. Besides, budget gaps exist one year at a time; if the governor was going to calculate a multi-year budget gap so he could make the number look bigger, he should have cited a bigger number of the size of the tax increase, too.
By the way, the amount raised by the added high-income tax is more like $2.7 billion than $2 billion. The net revenue impact of everything Cuomo and the Legislature just did, including other tax extenders, falls to $2 billion because of various smaller business and personal tax cuts (such as the $350 election-year “family credit” and the “minimum wage reimbursement credit“) also enacted with the budget.
Some official clarification of all these numbers should come with the Enacted Budget Financial Plan, due in about a month.
** UPDATE: Just noticed that the Senate’s enacted budget “fact sheet” indicated that the state’s “structural deficit” to $2.8 billion in 2015-16 — which would mean, in gap-closing terms, the budget deal clipped a net $800 million off the gap in the governor’s original plan, despite the much larger tax hike. It would also mean I was way off when I speculated, generously, in this op-ed that the budget would leave an out-year gap of $1.5 billion.
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