Tax policy can boost New York’s recovery — or thwart it

Millions of workers have fled New York due to the pandemic and the remote work opportunities it’s created. There’s a

▶ chance these workers may not return, even when offices open back up.

Lawmakers must answer a difficult question: In an increasingly mobile economy, what policies are going to drive more people away from New York, and what policies could make them stay?

There is good news.

Throughout the pandemic, the state’s revenues have remained largely stable.

But this may not remain the story. Businesses are looking to a POST-COVID-19 world, one where workers will demand greater flexibility in where they work.

As policymakers balance budget needs with the need to keep people working in the state, they cannot let fears of migration-induced revenue declines become a self-fulfilling prophesy by dramatically increasing tax burdens on those who stayed or would otherwise return. An overreaction now could have adverse effects for years to come.

When considering potential revenue options, there are three specific tax proposals that would hurt New York’s recovery, and three that would aid its recovery.

The most talked about idea is the mark-to-market taxation of capital gains income, often branded as a wealth tax, which could force business startups to

be liquidated to pay heavy taxes on rising business value that exists only on paper. The tax likely violates the state constitution, and its administration involves complexities that champions of the proposal have yet to address.

Another proposal is a tax hike aimed at top earners, dubbed a millionaire’s tax. Currently, filers with more than $1 million in taxable income make up just .6 percent of New York taxpayers but are responsible for 15.2 percent of all small-business income and 74.3 percent of all capital gains income in the state. They pay 41.8 percent of all state taxes. Raising their rates again sends a “stay where you are” message to high earners who temporarily relocated out of state.

There is also a proposal to reestablish a stock transfer tax. Financial services make up 29.1 percent of New York state’s economy. Nonpartisan analyses estimate that a tax at half this rate could slash up to 60,000 jobs in New York City alone—and that was 17 years ago. It’s becoming increasingly easier for markets to shift in this country. Why give markets an excuse to leave, especially now?

The good news is for every anti-growth tax policy proposal, there are alternatives that would benefit New York.

One option is to broaden and modernize New York’s outdated sales tax. If done right, this would make New York’s tax code more progressive, stabilize collections, and generate additional revenue, particularly from higher-networth New Yorkers who are more likely to consume currently untaxed personal services.

The state could also legalize and tax gaming and marijuana. The benefits of this are twofold. Not only would it cut into current black markets, but it also could prove a viable long-term revenue stream for the state—not just from excise taxes, but also from general taxation of newly legalized markets.

And lastly, lawmakers should revisit some costly tax incentives that are not generating much economic growth. For example, the film tax incentive creates almost no jobs but costs New Yorkers over $400 million each year. Modifications to these tax incentives could free up more revenue for the state.

There will always be something special about New York. Mobility, though, is the watchword of a post-pandemic economy. For the Empire State to remain a major player in the global economy, policymakers must prioritize sustainable, economically efficient revenue decisions and must not let their fear of the future dictate drastic tax increases.