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For Release — Monday, March 31, 2003

WALSH: ALBANY MUST REJECT 'NEW JERSEY PLAN' OF TAX INCREASES;
THE GARDEN STATE'S 2002 TAX INCREASES 'SHOW WHAT NOT TO DO'

ALBANY—New Jersey's decision to raise corporate taxes last year had great economic effect-for New York. That's why New York's state lawmakers must reject the union-driven "New Jersey Plan" to raise state taxes, Business Council President Daniel B. Walsh has warned state lawmakers.

In a March 28 letter to all state lawmakers, Walsh warned New Jersey's 2002 tax increases are basically the same ones that unions and other advocates are aggressively promoting in New York. He also expressed alarm at widespread reports that these advocates for higher taxes may be gaining traction, and that legislators may be seriously considering replicating at least part of New Jersey's blunder.

"Last year, New Jersey did something great-for New York!" when it tried to solve its budget woes with a huge increase in corporate taxes, Walsh wrote."Though they pitched it as an effort to close 'loopholes,' it nearly doubled corporate income taxes in New Jersey.

"The damage to New Jersey's business climate was immediate, and we New Yorkers leapt to take advantage of it," he added. "Economic developers across New York (and elsewhere) are still using this misstep as they seek to lure businesses out of New Jersey."

What's more, the tax increase didn't help, and it may have hurt, he added. The state faces a $1.3 billion deficit this year, another $5 billion deficit next year—"And they've already securitized their tobacco settlement monies."

The unions don't highlight the similarities of their proposal to New Jersey's tax increases; in fact, they are trying to offer lawmakers cover for raising taxes by calling it "loophole-closing." But the plan is "pure New Jersey North," Walsh wrote. "And it could double corporate taxes in New York, at the very moment that our economy is struggling to emerge from a recession that has dogged us for two years.

The campaign for higher taxes is driven in part by a misleading argument that business pays less than a "fair share" of taxes. That charge is debunked in a new report from The Business Council's research affiliate, The Public Policy Institute, which shows that business pays about a third of all tax dollars collected by state and local governments. That report is at www.ppinys.org/reports/2003/fairshare03.pdf.

Tax revenues are declining because the economy is in recession, Walsh noted. "The very last thing New York State should want to do is cut off our recovery at the knees by doubling our corporate income taxes," he added.

The letter outlined the specifics of the union-backed tax scheme-and showed why they won't work:

. A proposed alternative minimum tax is a "harebrained idea that turns the whole purpose of the corporate 'income' tax-that is, a tax on profits- on its head," Walsh said. Instead, it is a tax on gross receipts—that is, on sales. "In some cases, a company's taxes would increase when its profits decreased. Year in and year out, this tax would fall hardest on low-margin businesses (grocery stories, for example), while having no impact on the high-margin, highly profitable corporation."

. Worldwide combination reporting amounts to an attack on New York's status as an attractive home to global corporations, Walsh wrote. Global corporations are the "crown jewels" of the economy by virtue of their sales in other states and nations. And manufacturing exporters are the foundation of countless upstate communities. "We want them selling more overseas-not less. For New York to try to capture income earned by their subsidiaries in other countries-income that has nothing to do with operations in this state-will give them a strong disincentive to invest and grow in New York."

. The plan to decouple New York from the extra depreciation allowances under the federal tax code would eliminate "a strong, up-front incentives to invest in new plant and equipment in New York now, when we need it most, recovering from a downturn," Walsh said. "This is the worst possible time to turn to an idea like this."

"New Jersey North: we don't need it," Walsh said. Noting that business leaders across the state had been expressing alarm about reported interest in the tax increase, he concluded: "Can I assure them that you are going to use New Jersey only as an example of what not to do?"

Walsh's full letter is posted at www.bcnys.org/whatsnew/2003/dbwcorptax.htm.

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