Long Island’s State Senate and Assembly members are patting themselves on the back for having blocked a revival of the commuter tax. But they also have provided the pivotal bloc of legislative support for a big state income tax hike that will transfer more of the Island’s wealth to places like Binghamton and Buffalo.

In an era of steeply progressive taxation, state aid formulas generally tend to redistribute large amounts of income from relatively wealthy areas such as Long Island to relatively poorer areas north of the Bear Mountain Bridge. But the latest state budget deal pushes this to an extreme.

The Legislature expects the income tax hike to produce nearly $1.7 billion in the 2003-04 fiscal year. At least 90 percent of that will be generated within a 50-mile radius of Grand Central Station – which includes, of course, much of Long Island.

Married couples with taxable incomes over $150,000 who are already paying at least $10,275 a year in state income tax will be hit with a surtax of up to 9.5 percent this year under the Legislature’s new revenue bill. For those earning over $500,000, the surtax will exceed 12 percent.

Nassau County alone, because of its concentration of wealth, will generate 14 percent of all the added income taxes paid by state residents as a result of the Legislature’s action, state tax data indicate. That’s far out of proportion to its 7 percent share of state population and its 9 percent share of statewide personal income.

Many Long Island legislators defended their vote in favor of higher income taxes by saying they wanted to prevent increases in property taxes. However, putting aside the question of whether counties, towns and school districts are trying nearly hard enough to hold down their own expenditures, the tax hike vs. state aid tradeoff for much of Long Island isn’t close to even.

School aid is the single largest category of spending restored by the Legislature, and also the most important factor in determining property taxes. But the total school aid restoration for Nassau districts – about $60 million, or just 6 percent of the total – is one-third of the roughly $180 million in added state income tax that county residents are likely to pay in the new fiscal year. Small amounts of additional aid to Nassau’s local governments won’t begin to make up that difference. And the Legislature’s new spending in another important category, Medicaid, may actually increase the county property tax burden.

School-aid restorations will come closer to matching the overall state tax increase in Suffolk County – although some communities with higher average incomes, such as Smithtown and Huntington, will be net losers. But for the Island as a whole, the difference between added taxes and restored spending represents a net loss of at least $100 million to other regions of New York.

It’s easy to understand why upstate legislators, despite their traditionally more conservative fiscal posture, were willing to fall in line behind this budget deal. After all, it will pump hundreds of millions of dollars into their schools without directly costing their constituents a penny.

What’s harder to fathom is why so many Island legislators not only supported the income tax hike but led in promoting it. Perhaps some simply didn’t think it through. Or, perhaps, for some, the property tax argument provided convenient cover for something else: a cave-in to politically influential public employee unions, private hospitals and nursing home operators, all of whom have a voracious and constantly growing appetite for state tax dollars.

At a time when Long Island is still losing private sector jobs, the added taxes won’t just stress some families. They also will fall heavily on the region’s entrepreneurial class. The profits of many small, closely held and family owned businesses are taxed primarily through the personal income levy rather than the corporate tax. Their employee compensation packages and investment plans – and, in some cases, their presence on Long Island – are sure to be hurt.

There’s still a little time left for legislators to rethink this terrible package. If Long Island’s delegations are really interested in holding down local costs, they should focus on state mandate relief and Medicaid reform – both of which are within their control but absent from the budget they approved.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

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