This week’s stock-market plunge amid mounting fears of a global economic slowdown triggered by the coronavirus couldn’t come at a more crucial time in New York state’s budget-making process.
On Albany’s truncated budget calendar, this is the week Gov. Andrew Cuomo and lawmakers are supposed to reach “consensus” on a revenue estimate for the state fiscal year that starts April 1. By mid-March, Senate and Assembly Democrats will have drawn up and passed their respective one-house responses to Cuomo’s budget proposal.
For lawmakers inclined to spend more than Cuomo has proposed, the turmoil on Wall Street should come as a timely and sobering reminder: New York’s tax base is both exceptionally wealthy — and exceptionally fragile.
As a financial capital, New York is more vulnerable than any state to the ripple effects of economic shocks affecting financial markets. The personal-income tax makes up two-thirds of New York’s total state tax revenue, a larger share than in all but a few states. And 40 percent of the PIT is generated by the highest-earning 1 percent of taxpayers, whose taxable income tends to be more heavily correlated with investment gains and market trends.
As the Assembly’s own fiscal staff pointed out in a report issued a decade ago, New York’s PIT base is “inherently unstable,” thanks to its “volatile” and “unsustainable” dependence on a small number of high-income taxpayers. Since then, with the enactment and repeated extension of New York’s extra-high “millionaire tax,” it’s only gotten worse.
Whether many state legislators actually understand this, or care, is another question.
For the past several months, Albany’s most ardent progressives have been pushing new soak-the-rich tax agendas cribbed from the presidential platforms of Bernie Sanders and Elizabeth Warren.
As if one state in isolation, much less high-tax New York, could get away with imposing new taxes on accumulated wealth and stock transfers on top of still-higher income-tax rates — even though the tight new federal cap on state and local tax deductions already has pushed New York’s effective tax price to an all-time high.
With his self-imposed (if squishy) commitment to spending restraint and warnings that wealthy taxpayers are flight risks, Cuomo stands as the main obstacle to such proposals in Albany.
Just more than a year ago at this time, the governor was sounding the alarm over what he described as a “serious as a heart attack,” $2.3 billion drop in PIT receipts. That revenue dip turned out to be more of a temporary blip, driven mainly by timing changes in tax payments prompted by the new federal tax law. PIT receipts ended up exceeding the governor’s original estimates — and Cuomo’s January budget proposal envisioned further moderate growth in revenues through fiscal 2024. But a lot has changed in the past week.
On paper, the governor is closing part of the Medicaid gap by permanently rescheduling $1.7 billion in Medicaid payments from one fiscal year to the next — the kind of accounting gimmick that state law would flatly disallow if New York City tried it. He has made further Medicaid cuts and changes that he says will save nearly $900 million a year going forward. A public-health threat originating half a world away is confronting Cuomo with a serious revenue downside risk to go with a budget problem of his own making: a multibillion-dollar hole in the state’s massive Medicaid budget.
That still leaves a $2.5 billion recurring Medicaid imbalance, which he has assigned a “redesign team” to solve with recommendations due right around the time lawmakers pass their one-house budget resolutions in mid-March. Meanwhile, the education establishment is pushing for a much bigger increase in school aid than the governor has proposed.
And it’s a legislative election year — the first test at the polls for the large new Senate Democratic majority seated last year, with a handful of senior members in both houses facing June primary challenges from the left.
Before Thursday’s revenue conference at the Capitol, state Senate analysts projected that tax receipts will be $1.1 billion higher than Cuomo’s estimates for next year. Assembly Democratic staff think the number will be even higher, at $1.7 billion.
Cuomo’s task now is to push the consensus on added revenue closer to zero — if not even lower.