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February 26, 2002

Labor-funded group calls for raising business taxes, canceling scheduled tax reductions

The Fiscal Policy Institute, a think tank substantially funded by labor unions, urged lawmakers to raise taxes on New York businesses and to cancel tax cuts that are scheduled to take effect in the coming year.

Testifying before the Senate Finance and Assembly Ways and Means committees, the institute's executive director, Frank J. Mauro, called for an increase in the alternative minimum tax (AMT) on corporations from the current 2.5 percent to 3.5 percent.

The AMT limits the value of the state's investment tax credit, which encourages employers to invest in New York by allowing a credit of up to 5 percent of new capital investment. The state Department of Taxation and Finance reported this week that, mainly because of the AMT, employers were only able to use $119 million of the $1.6 billion in investment tax credits that should have been available in 1998.

Because the investment tax credit mainly benefits manufacturers and securities broker/dealers, raising the AMT would particularly harm those key industries. Rather than raise the AMT, Business Council President/CEO Daniel B. Walsh urged lawmakers to eliminate the minimum tax entirely, to encourage more capital investment and job creation in the state.

Mauro also urged the Legislature to consider repealing or deferring business tax reductions enacted in previous years and scheduled to take effect in 2002-03. The corporate tax rate falls from 8 to 7.5 percent for thousands of companies this year, under legislation Senate Majority Leader Joseph L. Bruno initiated in 1997.

The Fiscal Policy Institute previously joined the Public Employees Federation, the Civil Service Employees Association, and other advocacy groups in calling for higher taxes on upper-income individuals. That proposal, which Mauro repeated in his testimony this week, calls for a two-year personal income-tax surcharge on the portions of taxpayers incomes above $100,000.

The tax-and-spend advocates have cited a paper by the labor-funded Center on Budget Priorities arguing that tax increases would not "in general" be more harmful to the economy than spending reductions.

But The Business Council's research affiliate, The Public Policy Institute, in December published a paper showing that New York's experience in the recession of the early 1990s suggests the opposite.

That paper, It Didn't Work The Last Time, concluded that higher state taxes enacted during the early 1990s to boost state revenues drove jobs out of the state and drove revenues down. Many years of deferred tax cuts and other tax increases cost New York State hundreds of thousands of jobs, the paper concluded.

The plea for more state spending and higher state taxes came just one day after Governor Pataki said in releasing his executive budget that the state would preserve enacted tax cuts.

It Didn't Work The Last Time.

Meanwhile, a group calling itself the "Campaign for a Fair Tax Plan" told the New York Times that Nassau County, already one of the highest-taxed counties in the state, should impose a local tax on "high incomes."

The tax-and-spend advocates said the new tax is needed to close an estimated $428 million gap in a four-year fiscal plan that Nassau County is preparing for a state oversight board that tracks county finances.

"This is an idea whose time has come," Matt Jacobs, a teachers' union official, told the Times.

The tax-and-spend advocates proposed a tax of 1 percent and 2 on annual incomes over $150,000 and $200,000, respectively.