Taxing 'Til We Drop
May 5, 2003
By E.J. McMahon
BY any standard, the revenue bill passed by the state Legislature last week was a real blockbuster - raising taxes on a scale that would dwarf anything enacted during the rolling fiscal crisis that punctuated Gov. Mario Cuomo's tenure.
* If the Senate and Assembly muster enough votes to override Gov. Pataki's expected veto, New Yorkers will be hit with at least $5.4 billion in new taxes over the next three years. That's $1.8 billion more than the total amount of new taxes imposed during the last five years of Cuomo's tenure.
* During the 2003-04 fiscal year alone, the Legislature is seeking to raise state personal-income, business and sales taxes by a total of $3 billion. By comparison, the worst tax hike enacted under Cuomo was less than half as large - valued at $1.25 billion in 1990-91.
Even measured relative to the size of the budget, Cuomo's tax hikes were much smaller than what the Legislature is now seeking.
Pataki keeps warning that the Legislature's approach will lead to a re-run of the early 1990s, when repeated tax hikes contributed to an economic downturn in which the Empire State lost more than half a million jobs, most of them in the city.
But for an even better perspective on what's unfolding in Albany, you need to reach further back in time - to the era of Nelson Rockefeller. The tax package crafted by an alliance of Senate Republicans and Assembly Democrats would raise the state's marginal income-tax rate for the first time since 1969 and increase New York's sales-tax rate for the first time since 1971.
More than any other part of the Empire State - more, indeed, than any other region of the entire country - New York City, Long Island and the lower Hudson Valley have been clobbered by the falling stock market and the economic consequences of the World Trade Center attack. And as a center of wealth generation and (sometimes deceptively) high household incomes, this region also will be hardest hit by the Legislature's wealth-sapping taxes.
In New York City, the Legislature's action would boost the combined state and local income tax to 11.35 percent. That would be the highest in the nation, nearly double the New Jersey rate, and well over double the rates in other states surrounding the greater metropolitan area (as shown in the chart to the left). New York' sales-tax rate, already 2 to 3 percentage points above the regional norm of 5 percent to 6 percent, also will rise by another quarter of a percentage point.
To make things even worse, Mayor Bloomberg and City Council Speaker Gifford Miller are celebrating a deal with the Legislature that apparently will include both a small additional city sales-tax increase and a city income-tax hike mirroring the state's. The result will be a top marginal income tax rate in New York City closer to 12 percent.
As if all that wasn't enough, to cover its massive revenue bet in the new budget, the Legislature is insisting that the income tax withholding tables be increased enough to generate a year's worth of revenue in less than a full tax year.
In other words, for affected taxpayers, the immediate effect could be a state tax withholding bump of 15 percent to 20 percent. This will ensure the newly heightened cost of working in New York doesn't escape the notice of any of the highly mobile, market-battered, security-spooked investors and business decision-makers who may already be reconsidering their presence here.
Both the state and city tax increases are presented as "temporary," supposedly phasing out over the next three years. But these sunsets are even less plausible than is usually the case, for two reasons.
First of all, because the taxes are likely to kill jobs and hurt the economy in the manner Pataki has predicted, they will generate less revenue than expected.
Second, the Legislature will remain under continuing pressure to meet the spending demands of Albany's iron triangle of public-sector union bosses, subsidy-dependent hospitals and gilt-edged public schools.
And even with the added tax revenues, the state is looking at continuing multibillion-dollar budget gaps for years to come - because overwhelming majorities in the Senate and Assembly couldn't say "No" to spenders the year before an election.
What makes anyone think they'll muster the courage to say no when taxes on an economically crucial but relatively small segment of the population are due to sunset in advance of the next election after that?
Do the legislators who voted for this massive tax hike understand what it would do to the city and state economy? Or do they even care?
We'll soon learn the answer.
E.J. McMahon is a senior fellow at the Manhattan Institute. His work can also be found at www.nyfiscalwatch.com.
©2003 New York Post
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