An advocate at the People's State of the State rallying for fairer taxation in the state. The governor's new plan for tax reform includes a zero rate income tax for manufacturers upstate, expansion of estate tax exemptions, a two year property tax freeze and a property tax circuit breaker. Several aspects of the plan have sparked controversy among lawmakers and progressive lobbyists. Photo by Matthew Dondiego.
January 13, 2014The tax policy reforms proposed by Gov. Andrew Cuomo at the onset of the 2014 legislative session have received mixed reviews from lawmakers, advocacy groups and pro-business organizations.
The governor's new $2.2 billion tax relief plan – unveiled during a press conference in Albany last week and reiterated in his State of the State address – consists of several tax cuts, including property tax credits for manufacturers, expanding the exemption threshold for the estate tax, a renter's tax credit and a conditional two-year freeze on homeowner's property taxes that would transition into a circuit breaker system.
To qualify for the property tax freeze, local governments will be required to adhere to the governor's ultimatum: stay within the 2 percent tax cap in the first year and in the second year take concrete steps toward consolidating with other local governments or share services with them.
"It is time to stop making excuses. It is time to start making progress. If the locality wants the state property tax credit it must perform," Cuomo said in his State of the State speech.
After the second year of the property tax freeze, a property tax circuit breaker will take effect. The circuit breaker is a tax credit based on a homeowner's income. Households making up to $200,000 will receive the tax rebate if their local government stays within the 2 percent tax cap. The freeze will not apply for New York City but the circuit breaker will be statewide.
"The main tax burden in New York state is not the income tax; it is the property tax. We raise about $40 billion per year from the income tax and we raise $50 billion from the property tax. And that is the tax you will hear New Yorkers complaining about from one end of the state to the other," Cuomo said in his speech last Wednesday. "As a matter of fact no matter how you look at it, New Yorkers don't just pay a high property tax; they pay the highest property tax in the United States of America."
Cuomo's plan also includes a tax break for renters across the state earning up to $100,000. The break will be in the form of an income tax credit.
While Senate Republicans voiced support for some of Cuomo's proposals, they say New York needs even more policies aimed at helping the middle class.
"In addition, the governor and Assembly should join us in supporting a permanent state spending cap along with a dedicated fund for ongoing tax relief, and legislation making the middle-class tax cut permanent," said Senate Republican Conference leader Dean Skelos, R- Rockville Centre. "Our three-year commitment to spending less has created a surplus. This surplus should be returned to hardworking, middle-class families and used to encourage businesses to create new, good-paying jobs across the state."
Assembly Democrats warned that while the plan provides relief for hardworking homeowners, the governor should keep in mind the programs that still need funding.
"Governor Cuomo has presented a bold vision for providing tax relief for hard working men and women across New York," said Assembly Speaker Sheldon Silver, D-Manhattan. "As I have said in the past, any proposal should be premised on a principle of fairness to all New Yorkers — city residents, suburbanites and rural residents alike. At the same time it is important that we have the resources necessary to fund vital health and education programs which are the bedrock of New York's quality of life. I look forward to working with the governor and with our colleagues in the Senate to craft a fiscally responsible budget that meets the needs of our state's most vulnerable citizens while at the same time providing tax relief for those who need it most."
Cuomo proposed expanding the threshold to be eligible for estate tax exemptions. Right now estates worth less than $1 million are exempt from the estate tax. Cuomo proposes extending the eligibility to estates worth up to $5.25 million and lowering the top rate to 10 percent.
"New York is one of only fifteen states with an estate tax and our exemption levels are among the lowest and our rates are among the highest. Let's eliminate the "move to die tax" where people literally leave our state, move to another state to do estate planning. We propose raising New York's state tax threshold and lowering the rate to put it into line with other states," Cuomo said in his speech.
Some groups showed concerns regarding several aspects of the governor's plan, specifically the expansion of estate tax exemptions.
"At a time when New York has the worst income inequality in the nation and record levels of homelessness, child poverty, hunger and long-term unemployment, providing gratuitous tax cuts for millionaires is counterproductive," Ron Deutsch, executive director of New Yorkers for Fiscal Fairness, said. "The governor's estate tax restructuring proposal to give hundreds of millions in relief to the wealthiest 200 families in the state is unconscionable and misguided," Deutsch said.
Progressive advocates likened Cuomo's plan to "voodoo economics."
"How many times does history have to prove that tax breaks for business and the wealthy don't help working and middle class New Yorkers?" asked Karen Scharff, executive director of Citizen Action of New York. "If the state's leaders really want to reduce property taxes, they should adequately fund our schools and municipal services - not give away precious state dollars to corporations and those inheriting multi-millions. We need a tax plan that works for all of us, not more voodoo economics."
Cuomo's plan would also provide tax cuts for manufacturers and corporations. Manufacturers would receive a refundable property tax credit equal to 20 percent of the manufacturer's annual real property taxes. The corporate income tax would also be reduced to zero for upstate manufacturers.
"Let's go to the upstate manufacturers because we need manufacturing jobs in upstate New York and let's cut the corporate tax in upstate New York to zero all across upstate New York, period. Why, because you cannot beat zero my friends and it is a competition," Cuomo said in his speech.
According to a report released by the Governor's Office to supplement his speech, New York businesses paid more than $18 billion in property taxes in 2012 over a third of all property taxes. The property taxes are not tied to the profitability of the business making them as the report states, "An especially onerous barrier to growth for start-ups and other young businesses so critical to New York's future."
Cuomo also proposed merging the bank tax with the corporate franchise tax and lowering the rate to 6.5 percent. According to the Governor's Office, the merger will bring the tax code up to date with the financial services industry and eliminate disincentives for financial firms to invest in the state.
President and CEO of the Business Council of New York State, Inc., Heather Briccetti applauded the governor's proposed plan and the relief it would provide for businesses. The organization represents large and small firms' interests across the state.
"The importance of the tax relief component for manufacturers cannot be overstated. The loss of manufacturing jobs is one of the main reasons the upstate economy has struggled. This is an important step in the right direction for upstate, and New York as a whole," Briccetti said.
Billy Easton, executive director of the Alliance for Quality Education, showed pessimism towards the governor's tax relief plan. "Governor Cuomo's tax plan front-loads tax breaks for banks and wealthy estate owners with money that our classrooms sorely need. The average millionaire estate owner would receive $128,000 in taxpayer subsidies. Instead, it would make more sense to spend this money on libraries and teachers in our kids' schools," Easton said.
Cuomo praised the progress of the past three years and expressed hope for the future in his State of the State speech. "We stopped talking and we started doing. And in three years my friends, you have reversed decades of decline and made dramatic and undeniable progress. For the first time in modern political history the state has real fiscal discipline, we have held spending to 2 percent. And because we spent less, we could tax less and we did. Every New Yorker pays less income tax today than the day they did three years ago when we started this journey," Cuomo said.