Spitzer’s Proposed Budget Taxing on Business

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Gov. Spitzer’s proposed budget “sends the wrong signal to firms that might otherwise consider investing or expanding in our state” by raising taxes on some large corporations, E.J. McMahon of the Empire Center for Public Policy said in testimony before the Legislature’s joint fiscal committees.

McMahon, director of the Empire Center, also identified a series of “flaws and shortcomings” in the governor’s proposal to expand School Tax Relief (STAR) property tax breaks for homeowners.

In discussing what Spitzer has described as business tax “loophole closers,” McMahon focused on an Executive Budget proposal to require combined reporting of income from their subsidiaries. He said the proposal “would reverse a consciously adopted policy aimed at encouraging headquarters companies to locate in New York.”

As alternatives, McMahon suggested the Legislature avoid further tax increases and instead consider new tax reductions, such as the business tax cuts already passed by the Senate. He also recommended the creation of a blue ribbon panel to recommend a comprehensive overhaul of state business taxes.

“The goal should be to give New York a business tax code better suited to the global economy of the 21st century — a tax code that establishes sustainable economic growth and competitiveness as paramount goals,” McMahon testified. “Instead of worrying about the extent to which New York corporations are shifting profits to tax havens elsewhere in the country, we should be trying to figure out how we can turn New York itself into a tax haven.”

On property taxes, McMahon said more than half the homeowners in at least 12 of New York’s largest suburban counties earn too much to qualify for full relief under the governor’s Middle Class STAR initiative. He said the Spitzer plan also includes “a built-in marriage penalty,” and that expanding the existing STAR subsidy by $6 billion over three years will give school districts a further incentive to accelerate their spending and tax levies. Like the existing STAR program, it fails to provide relief for high property taxes on apartment buildings and commercial properties, he noted.

“Before the Legislature approves any increase in STAR, whether it is the governor’s plan or the Senate’s, this relief should be linked to a cap on property tax levies,” McMahon testified, noting a similar cap was passed recently by the New Jersey Legislature. Another similar cap — Prop 2 and a half — has been responsible for a sharp relative decline in the local tax burden in Massachusetts over the past 25 years, McMahon said.