By Ed Cox, NYGOP chair
Originally published in the NY Post
Coincidence? Gov. Cuomo has changed the “Tax-Free NY” misnomer on his new economic plan to another optimistic label, “Start Up NY,” after Texas Gov. Rick Perry pointedly called the plan “small ball.”
Problem is, under any name it still smells.
Texas has neither a corporate nor a personal-income tax. Under “Start Up NY,” New Yorkers will still be crushed by the most burdensome taxes in the nation – the highest local tax burden per person in the nation, the eighth-highest top personal-income tax rate and a median property tax more than double the national average.
The program just lets a very few select businesses benefit for a few years from some tax exemptions. And even those firms will have no incentive to stay in New York when the exemptions expire after Cuomo’s re-election.
The governor’s political instincts were right in the first instance: New Yorkers yearn to be more “tax free.” But his plan was mugged by the reality that it didn’t actually touch taxes for virtually any New Yorkers.
Yet, rather than summon the political guts to deliver what New York desperately needs – relief from crippling taxes – he just changed the label.
According to the IRS and the Census Bureau, more than 1.5 million New York residents have moved out of state since 1995. That amounts to a loss of more than $58 billion in taxable income.
The top destination for those “refugees” was Florida – a state with no personal-income tax. This is no statistical fluke – the top 10 most popular destinations for those who’ve left have an average personal-income tax of 2.9 percent, six points lower than New York’s top rate.
Cuomo has said that lowering personal income tax rates is “impossible.” Instead, he’s extended tax hikes on high-income New Yorkers as well as the utility tax on all New Yorkers. The former is an incentive for New York’s job creators to relocate; the latter is a hidden tax hitting New Yorkers’ paychecks.
Meanwhile, “Start Up NY” won’t even do much for startups. It’s too limited in scope and too subject to political manipulation to be effective.
Startups just don’t pay much if anything in taxes – they’re consuming capital, building toward the day when they have big revenues. They compensate employees with relatively low cash pay, supplemented by equity in the company (“if we succeed, you’ll cash in – but until then, we can’t afford to pay much”). They rarely have that much income to tax, let alone net revenues.
So Cuomo’s tax benefits will be only marginally helpful – and any small benefit will be negated by the hoops they’ll have to jump through to get that benefit.
Similar political gimmicks have been the hallmark of Cuomo’s tax policy. Most notable is his oft-made claim that middle-class New Yorkers are paying the lowest tax rate in 60 years: This is technically true, but hollow.
Under the new tax brackets that Cuomo rolled out in 2011, New Yorkers saw their income-tax rate dip marginally from 6.85 percent to 6.65 percent or 6.45 percent. The average Empire State taxpayer saved $155 a year – hardly the radical tax code overhaul needed for New York to become truly competitive.
More meaningful proposals, like cutting the tax rate for capital gains (which are now treated as ordinary income) haven’t won serious consideration. The federal government and most states tax cap-gains at a lower rate than ordinary income, encouraging capital investment and spurring job growth. The historical record demonstrates that government revenues rise as capital-gains-tax rates are cut.
This trivial program won’t help the governor in the economically hardest-hit parts of New York. Upstate voters have been losing faith in him all year. A recent Buffalo News poll showed that 52 percent of upstate voters prefer “someone else” to Cuomo in 2014. A June 17 Siena College poll shows his statewide favorability and job-approval ratings at their lowest level since he took office.
To turn those numbers around, Cuomo will have to offer effective economic policy – not pure political theater.
Ed Cox is chairman of the New York State Republican Party and former chair of the SUNY Finance Committee.