The just-passed $212 billion state budget is the largest in New York history. Depending on who you ask, the spending plan is either “a mid-2020s fiscal disaster in the making,” as the Empire Center’s E.J. McMahon recently wrote on his blog, or it’s “a couple steps toward liberation” as Assemblyman Ron Kim told members of the media last week.
It won’t be known for years whether the budget is a spend-fest or a long-awaited correction to the tax code. But what is known is that members of the progressive community and advocates for the poor are downright thrilled.
Jonas J.N. Shaende, PhD, the chief economist for the union-backed Fiscal Policy Institute, explained why to Capital Tonight.
“COVID-19 laid bare the problems that were present before the pandemic due to years of self-imposed austerity,” Shaende wrote in an email. “This year’s $212 billion budget represents a welcome and—to a significant extent—corrective departure from the enduring devotion to fiscal austerity that made our state weaker and our communities more vulnerable. Austerity hurts local economies and constrains growth.”
Over the past decade, Governor Cuomo has been vigilant, at least in his words, about ensuring that state spending did not increase beyond a 2% threshold. While most budget analysts will argue that the annual increase, in fact, regularly exceeded 2%, progressives have viewed the governor’s relatively tight rein on spending as a problem.
“So many people have been fighting, literally, for decades, for a fair tax system in New York,” Ron Deutsch, executive director of New Yorkers for Fiscal Fairness told Capital Tonight. “We are many steps closer to that than we have been in the past.”
Deutsch said the progressive community is especially excited that it secured additional increases in the top tax rates.
“We’re only talking about less than a 1% increase for people making between $1 million and $5 million a year,” Deutsch argued. “I don’t think that’s enough to make them want to pack up and leave.”
But the Empire Center’s McMahon writes in his blog that “the very long list of negatives in the new budget begins with the revenue bill and personal income tax (PIT) hikes adding from 9% to as much as 24% to the state tax burden on New York’s highest earners—whose incomes are subject to volatile financial market swings, and who already pay a disproportionately large share of state income taxes.”
On the business side of the equation, New York is raising the corporate tax from 6.5% to 7.25%, less than a percentage point, in order to raise $750 million in revenue.
“Our neighboring states, New Jersey and Pennsylvania, have 10 and 11% corporate taxes, respectively,” Deutsch said. “Businesses aren’t going to be fleeing to those states.”
But Ken Pokalsky, vice president of the Business Council of New York, told Capital Tonight, that the personal income tax could affect small businesses.
“This budget spends a lot; it takes a lot. There’s a billion dollars of taxes directly on businesses, and by the way, small businesses also pay the personal income tax, so it could affect them as well,” Pokalsky said.
According to the Business Council, there are some things to applaud in the spending plan, including the $800 million in direct cash assistance to small businesses, that Pokalsky says takes the right approach.
“It focused that help on the sectors that were hardest hit and had the most lingering effects,” Pokalsky said.
For example, the money will help the hospitality sector, the arts sector, restaurants, and businesses that were shut out of federal aid.
There is also a SALT Cap workaround that Pokalsky said the Business Council had worked to help pass.
But there is one concern shared by both sides of the tax policy issue: That the increase in state spending isn’t supported by permanent revenues. Federal funding is only temporary, and the tax increase on the state’s wealthiest New Yorkers is supposed to sunset in a few years.
“Are we setting ourselves up for the need for increased state-level taxes to fulfill these long-term financing commitments going forward,” Pokalsky wondered aloud.
Then again, in the course of New York State financial history, the word “temporary” when preceding the word “tax” has proven to be somewhat ambiguous in its meaning.