SHARP LEFT TURN
With taxes and spending both rising quickly and unnecessarily, the state’s economy could suffer
Ispent my early career in finance and politics. I then ran for state controller and won plaudits from this very tabloid. More recently, I started a side hustle saving small New York businesses, such as Astor Place Hairstylists, that were hit hard by the pandemic. An iconic barbershop that serves the working class and celebrities alike, there’s good cause to believe that Astor Place will flourish in New York’s coming economic landscape. I’m far more worried about what will happen to businesses that cater to the affluent, and to large companies that employ people of all economic strata.
At issue is our state’s new $212 billion budget, which incorporates epic amounts of taxes and spending. That isn’t conservative propaganda. We were already the highest-spending state in the nation on a per capita basis and this budget will only increase our victory margin.
Lawmakers can now also lay claim to imposing the highest combined state and local income tax rates in America; it seems they wanted this title as a point of pride. Specifically, the city’s most affluent will be asked to pay from 13.5% to about 15% in state and local taxes compared to California’s highest combined rate of 13.3%.
I purposefully say “asked” because our wealthiest residents have other options. Reasonable people on the left should concede there is a line that, when crossed, would provoke their New York exodus. The question for our newly emboldened and very far left-leaning legislative leaders — with newly empowered supermajorities that can override gubernatorial vetoes — is where do they draw that line?
According to an analysis by E.J. McMahon at the Empire Center for Public Policy, accounting for state and local tax (SALT) deductions that were capped in the Tax Cuts and Jobs Act of 2017, the annual effective increase in taxes for almost 2,000 New Yorkers will be more than $500,000. Yes, they are exceedingly rich individuals. But think about it: Would you move states for $500,000 a year (and then just come for a visit occasionally)?
Meanwhile, according to the Independent Budget Office, the Citizens Budget Commission and everyone else who can count, personal income tax revenues are very heavily reliant on a relatively few of those high-income mobile earners. Only 17% of New Yorkers account for 80% of the city’s income tax revenues, for example.
Corporations are similarly mobile today, thanks to Zoom and Slack and such, and after the
COVID pandemic, many are rethinking whether they need to plunk down millions of dollars on prime New York real estate.
Yet the state budget increases their tax rates to 7.25%, which comes on top of the Biden administration’s plan to increase corporate tax rates to 28%. That’s taking people who are already on the fence and giving them a nice hard shove.
Ironically, these tax hikes weren’t necessary to balance the state budget thanks to the influx of federal funds from Washington as part of the Biden administration’s stimulus plan. The pandemic is therefore something of an excuse to pay for spending we should not need. After the onetime infusion of federal funds are gone, we will be stuck with a jacked-up budget base that is entirely unsustainable.
Indeed, the budget contains an increase of $19 billion from what Cuomo originally called for and represents the largest increase on a percentage basis from prior year budgets in memory — likely into the double-digits as compared to the 2% annual increases in each of Cuomo’s previous budgets.
It is inarguably an OMG amount and includes $600 million in pay raises to unionized public-sector workers along with public school teachers and administrators who (heroes they legitimately are!) mostly made it through the pandemic without missing a paycheck.
The hazard everyone points to is the relative bargain for affluent newcomers that Florida, to name just one place with greener grass, offers. There is no state income tax (not a typo) nor any estate tax, and it consistently ranks near the bottom in terms of its overall tax burden, even including property taxes.
Yes, it’s a big move and New York has its irresistible charms. What’s missing in the public discussion, however, is the additional and likely bigger threat to enticing our tax base away. And that is Connecticut, where a Democratic governor, Ned Lamont, has (credit where it’s due) proved willing to say no to the very far left-leaning leaders in his state’s legislature.
As a result, Connecticut’s top marginal income tax rate remains under 7%. Its lower estate tax is on the decline. The minimum wage is below New York’s. And the state’s reserve funds are flush; Connecticut went into COVID with 50% more in rainy day fund reserves. The schools are also pretty good. Add in that Greenwich is a manageable daily commute for those who aren’t now working from home. I know because — full disclosure — I saved a small business there, too.