The state Legislature should avoid major tax hikes in New York’s next state budget, including a three-year surcharge on multimillion-dollar incomes proposed by Governor Cuomo, according to testimony presented today by E.J. McMahon, the Empire Center’s senior fellow.
“Raising taxes on the highest incomes to raise revenues in the short term will only accelerate the erosion of our tax base in the long run, ultimately undermining funding for the very programs the Legislature wants to protect,” McMahon testified. “Even worse, as New York’s economy struggles to recover from the pandemic, enacting any one of the significant ‘millionaire and billionaire’ tax increases now being promoted as a package could turn that erosion into a full-scale landslide.”
McMahon said New York’s tax revenues have recovered more strongly than those of other states—thanks to its reliance on an income tax that, in turn, is disproportionately paid by the state’s highest earners.
“The economies of New York City and State will recover eventually—but how strongly, and how soon, are open questions. In the meantime, the Legislature’s guiding principal can be summed up in five words: don’t push more taxpayers away.”
McMahon’s specific recommendations were:
- Reject Cuomo’s proposed tax increase. McMahon noted that the latest tax receipts show Cuomo’s budget can be balanced without the revenue the tax hike would generate, not even counting billions in additional temporary federal aid the state is likely to receive under an impending stimulus bill.
- Postpone scheduled middle-class income tax cuts for up to four years, which will save $2 billion. The cuts are “desirable but not essential at the moment,” McMahon said, recommending that the scheduled tax brackets be annually adjusted for inflation to preserve their value to taxpayers during the period in which the cuts are suspended.
- Repeal the Film Production Credit. The credit, which functions as an outright subsidy to the entertainment industry, costs $420 million a year, he noted.
In addition, McMahon recommended that the Legislature repeal the sales tax exemption on small clothing and footwear purchases, saving $800 million a year, and devote half of the $800 million in revenue savings to increase in the Empire State Child Credit. This, he said, will “provide larger savings for families with children—the original intended beneficiaries of this overly broad, poorly targeted exemption.”
McMahon said revenue raised by extending the postponement of tax cuts, eliminating the film credit and repealing the small sales tax exemption should be kept in reserve and used “to help finance a transition to a sustainable budget in the longer term” once an expected infusion of federal aid is exhausted over the next few years.
Rebutting claims by advocates of various sweeping proposals for higher taxes on “millionaires and billionaires,” McMahon presented data showing that New York’s income tax code is steeply progressive, relying on the highest-earning 1 percent to generate 44 percent of taxes paid by state residents, and that the New York’s relative share of the nation’s income millionaires has declined since the current “millionaire tax” was first enacted in the depths of the Great Recession in 2009.