Message from Liz . . .
As I write this, it appears that Governor Cuomo has reached a deal with legislative leaders to implement changes to our tax structure as part of efforts to close the state's budget gap. In the face of growing deficits for both the current and coming fiscal years, we must confront theses issues. I firmly believe that everything should be on the table as we move to address the impact of declining tax revenues, increased needs of low wage and unemployed New Yorkers, and anticipated cuts in Federal support on the State budget.
I have long advocated for fundamental reforms to our tax system. As Chair of the Select Committee on Budget and Tax Reform for 2009-2010, I explored a variety of issues on how to modernize personal income, sales and business taxes, and I have shared these findings of the Committee with the Governor and many on his staff. My hope is that this research will help inform his evaluation of New York State taxes. While I believe that such changes can and should enhance state revenues, it is also clear that reforming our outdated tax structure could encourage economic development by creating a more transparent and equitable system which rewards models that increase living wage job creation , and ends wasteful tax expenditures that create uneven playing fields for small and medium businesses while decreasing our tax base.
Most of the discussion of taxes in the last year or so has focused on extending some version of the high-income earner surcharge, or "Millionaires' Tax", which expire at the end of 2011. While I support extending this tax as necessary, recognizing that the hardship caused by our poor economic climate needs to be shared, and that currently the burden is falling disproportionately on the poor and middle classes. But, I have always believed there were better options, such as increasing the number of PIT tax brackets and indexing for inflation, which could generate revenue while creating a fairer tax structure.
If the millionaires' tax expires, a single person making $20,000 or a couple making $40,000 will again pay the same tax rate as people making 10, 20 or even 100 times more, and since the rich often have interest, dividend and capital gains income that is taxed at a lower rate, the actual tax rate paid by the very wealthy is often less than that paid by lower income individuals. One idea I have discussed with the Governor is to increase the number of tax brackets. This could actually reduce taxes for many middle income taxpayers - while increasing the tax rate for higher income earners. Although such a change might not generate as much revenue for the state as a straight extension of the high-income earner surcharge (though it could depending on what the rates were set at), it could still generate significant revenue while increasing the equity of the tax system.
While the focus on the millionaires' tax has been a strong catalyst for spurring the discussion on reform, it often obscures even more serious problems with our business and sales tax systems (which were designed for a 20th - or in some cases even 19th - century economy, and therefore have all sorts of inequities and perverse incentives that serve no public purpose in the 21st century). For instance, our utility taxes don't reflect changes to telecommunications with the rise of satellite television, voice over IP and other new technologies. Similarly, our sales tax structure exempts most services from taxation, which has the long-term effect of steadily reducing the sales tax base as we move to a more service--based economy.
Another major issue with our business tax structure is the way economic development incentive programs have morphed into a patchwork of often uncoordinated local and state tax credits that the more sophisticated - or the more politically connected - larger businesses are able to take advantage of whether or not they are actually creating jobs. I am hopeful that the creation of the Regional Economic Development Councils, which are tasked with developing goals for each region will result in a more strategic and effective use of tax expenditures for economic development. However, I also believe legislative changes may be necessary and that we will always need to guard against the damaging impacts these programs have when they only reward a few select companies, creating an uneven playing field.
My goals for tax reform are two-fold. First, we need to ensure our tax structure is providing adequate revenue to support vital public services , and that the burdens of taxes are equitably distributed. Second, we need to bring our tax structure into the 21st century, and make sure that we use it to encourage economic development. I hope Governor Cuomo, as I have urged him to do, will to take both of these principles into account as he develops his budget and faces the very difficult financial situation in which the State finds itself.
Liz