May 14, 2003
overrides Governor's vetoes
had tried to block higher income, sales taxes, and to line
out $1.3 billion in spending
The Legislature overrode Governor George Pataki's vetoes to impose the first increases in state personal-income and sales taxes in three decades, along with targeted increases in business taxes.
Despite multi-million-dollar lobbying campaigns by public-employee unions, however, The Business Council was successful in persuading legislators not to adopt the "New Jersey plan" of major, across-the-board corporate tax increases.
The enacted tax package, which Governor Pataki described as "the largest tax increase in state history," includes:
- Raising the top personal-income tax rate from 6.875 to 7.7 percent. That higher rate applies to taxpayers earning more than $500,000. A new top rate of 7.5 percent applies for individuals earning over $100,000 and couples with income over $150,000. Top rates in neighboring states include 5 percent in Connecticut, 6.37 percent in New Jersey, 5.3 percent in Massachusetts and 2.8 percent in Pennsylvania, according to the Budget Division.
- Increasing the state sales tax from 4 to 4.25 percent. In some regions, combined state and local sales taxes will now reach as high as 8.5 percent. The top sales rate is 7 percent in Pennsylvania, 6 percent in Connecticut and New Jersey, and 5 percent in Massachusetts.
- Approving the Governor's proposal to raise the state insurance tax by $158 million.
- Decoupling from federal depreciation rules that allow businesses to recoup capital investment more quickly.
- Requiring corporate taxpayers to add back certain payments made in relation to intangible assets.
All 62 Republican and Democratic members of the Senate voted in favor of the tax increases May 15, as did 104 of the 150 members of the Assembly. The Constitution requires two-thirds votes in each house to override gubernatorial vetoes. The override votes mean that higher taxes are now law. Governor Pataki has said, though, that the Legislature's action on the tax bill was unconstitutional, leaving open the possibility of legal challenge.
The Legislature's budget does not include a $20 million increase in hazardous waste and petroleum fees that had been included in the Executive Budget.
The Governor has said the legislative plan would create a two-year "out-year" budget gap of $13 billion. Legislative leaders have not released estimates of the future impact of the new budget.
Earlier in the week, Governor Pataki lamented the lack of structural cost-saving reforms in the Legislature's budget. Unlike the Executive Budget, the plan approved by the Senate and Assembly includes no reform of Medicaid; the Wicks law, which drives up public construction costs; or tort laws that cost New York City and other local governments hundreds of millions of dollars each year.