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Legislative Memo

Ken Pokalsky
Vice President of Government Affairs
T 518.465.7511
www.bcnys.org

SUBJECT:

Extension of Income Tax Surcharges

  Support

DATE:

February 25, 2011

 

 

The Business Council is opposed to an extension of the 2009 income tax surcharges as part of the Fiscal 2012 state budget.

It is imperative that New York State bring its spending under control.  New York State spending has grown at an unsustainable pace.  Without proposed reforms, state funds spending would total $101.7 billion in Fiscal 2012, a near 20 percent increases in just two fiscal years.  Over the six fiscal years from FY 2004 to FY 2009, inclusive, New York’s state-funded spending has increased at more than double the inflation rate - a 46 percent increase in spending compared to a 17 percent increase in the CPI.  The Governor’s budget presentation shows that without adoption of the spending reforms included in the Executive Budget, the state faces an aggregate budget gap of $60 billion over the next four budget years. 

It is bad enough that the state is facing a $9 billion budget gap for FY 2012.  The gap would be significantly greater if not for $12 billion in new and increased state taxes, fees and other revenue measures already adopted during the 2009 and 2010 legislative sessions. 

We simply cannot close these future budget gaps with tax increases. Significant spending restraint, restructuring major spending programs, and right-sizing state government have to be the focus of the state’s gap closing strategy.

The Business Council opposes continuation of the surcharges because they damage the state’s economic competitiveness in several ways. 

First, they impact business income taxed under the personal income tax through sub-S corporations, partnerships, limited liability corporations and sole proprietors, categories that include many small, entrepreneurial businesses.  Business income accounts for about 12 percent of all income taxed under the state’s personal income tax, and nearly 25 percent of state taxable income attributed to upper income taxpayers ($200,000 or greater in AGI). These high rates add to business costs and take away resources that could otherwise be reinvested in the business, including jobs.

Second, they adversely impact the state’s overall business climate and cost structure.  New York is a high cost state for many key business factors, including combined state and local tax burdens, energy costs (driven by state imposed taxes and assessments) and others.  The 2009 surcharges result in a marginal personal income tax rate in New York exceeded by only four states (California, Hawaii, Oregon and Rhode Island, based on data from the Commerce Clearing House 2011 State Tax Handbook.)

We agree that the personal income tax should be progressive, and New York’s pre-surcharge personal income tax was progressive.  Based on Department of Taxation and Finance data, prior to the 2009 surcharges, the effective tax rate on taxpayers with incomes over $200,000, was 94% higher – nearly double – the effective tax rate on taxpayers in the $40,000 to $50,000 AGI range.  At the same time, the lowest 40 percent of taxpayers, as measured by NYS AGI, pay no state income tax at all, and in fact receive more than $500 million in state tax refunds under the Earned Income Tax Credit (a provision that has been supported by The Business Council.)

The best long term fix for the state’s fiscal crisis is a strong private sector economy that will produce new jobs, new investment and increased tax revenues. 

The most effective economic development program for the state is a more competitive business climate.  We need to control state spending, not raise taxes, in order to achieve these goals.

For these reasons, we oppose extension of the 2009 personal income tax surcharges, and urge that they be allowed to sunset at the end of the 2011 tax year.