Testimony of
Daniel B. Walsh
President/CEO, The Business Council of New York State, Inc.
Senate
Finance Committee and
Assembly Ways and Means Committee
February 26, 2003
Chairman
Johnson, Chairman Farrell and distinguished members of the committees,
thank you for inviting us to appear before you today.
I want to
start by congratulating the Senate and Assembly for the work you have
done, for nine straight years now, to improve the lives of New Yorkers
by cutting taxes on our businesses and our workers. With the tax cuts
scheduled to take effect this year, you will make it 10 years in a row
that taxes have been reduced in the Empire State. That's a proud legacy.
You have
cut taxes again and again since 1994. As our tax burden became more competitive,
so did New York employers. In 1994, our job growth was a fraction of the
national average. By the end of the decade, in both 1999 and 2000, we
could proudly say that New York State not only had caught up to the rest
of the country - we were even growing jobs faster than most other
states.
Because cutting
taxes has been good for New York, we applaud the insistence by Senator
Bruno and the Senate Majority that the scheduled tax cuts go forward.
We agree
strongly with the comments about those tax cuts that are contained in
the Assembly Majority's "Yellow Book" on the proposed Executive Budget.
As you and your staff suggested in that report, Chairman Farrell, reduction
of the gross receipts tax on utility
customers,
increase in the earned-income tax credit, sales allocation for financial
services, and other tax cuts will enhance job creation and improve the
lives of working families in New York State.
Assemblyman
Barraga, we also applaud the proposals that Leader Nesbitt, you and your
colleagues have made to cut taxes and create jobs.
Governor
Pataki described the central issue in this year's budget as a choice between
taxes and jobs. That has always been the choice for New York, and in recent
years you have made the right choice time and time again.
This is no
time to change course.
In fact,
as the Governor has said, we truly have a opportunity to leap ahead of
other states in becoming more business-friendly. Competitor states such
as New Jersey and California enacted major tax increases last year or
are planning to do so this year. As the national economy recovers, your
success in cutting taxes will pay off again in new growth and jobs for
New Yorkers.
The
need to control spending
Choosing
jobs means avoiding new taxes. It also means holding spending to responsible
levels so that we can be certain we won't need new taxes next year or
the year after.
While the
Governor's budget restrains spending and imposes cuts in some areas, it
is by no means the scorched-earth plan that some critics want us to believe.
Overall spending is essentially unchanged from the current fiscal year.
In other words, our spending priorities are changing. As school aid is
cut, spending on Medicaid will rise by $1 billion under the Executive
Budget.
The main
problem facing you, we would argue, is not a revenue problem. Instead,
it is a spending problem.
When times
were good, you and the Governor were able to provide generous increases
for education, health care and other programs. If overall state-funds
spending had been held to the inflation rate over the past five years,
the state would have saved $7.9 billion in the current fiscal year. Now,
the good times are gone. Unfortunately, the time has come to face the
new reality that we need to control spending.
Getting spending
truly under control means going where the money is. Medicaid, in particular,
must be brought under control.
It's
time to rationalize Medicaid
You are familiar
with many of the statistics showing how much higher Medicaid spending
is in New York than in other states. For instance, if we could simply
reduce our Medicaid spending per capita to twice
the national average, taxpayers would save around $4 billion a year.
We have urged
that the state look closely at taking over the entire local share of Medicaid,
with an iron-clad requirement that counties and New York City use the
savings to reduce local taxes. The state will only be able to do that
if we get the cost of Medicaid under control.
Controlling
Medicaid costs does not
mean shifting more costs to employers who do the right thing and pay for
employee health coverage. We have a schizophrenic approach to private
health insurance in New York. On the one hand, state government tells
employers that we want businesses to provide health insurance. We even
provide some state assistance through the Healthy New York program. On
the other hand, we have laws that drive up the cost of health insurance.
These laws include mandates through which the state forbids employers
to provide health coverage unless the plan includes a long list of politically
preferred coverages. These laws also include the various Medicaid and
HCRA add-ons that shift costs from the state to private employers. Ironically,
because health insurance is so expensive, very few employers can afford
the Cadillac-level coverage that the state itself provides through Medicaid.
If we can
rationalize our public and private health-insurance plans, it will become
easier for individuals to move off the public plan and into privately
paid coverage.
Raising
taxes will hurt our economy and state revenues
Some of the
voices you will hear today will urge you to raise taxes on working families
and on the businesses that want to create the jobs New Yorkers need.
That would
mean reversing the progress you have made. It would mean putting at risk
the gains we have made in our competitive position, and the jobs we have
created as a result.
One proposal,
for instance, would impose an income tax surcharge on families earning
more than $100,000 a year. The average public-school teacher in New York
earns about $50,000 a year, as does the average construction worker. Thousands
of two-income, middle-class families would be among those hit by such
a tax increase. All told, more than 630,000 taxpayers would pay more.
Then there
are the arguments for higher business taxes. One of those we hear occasionally
is that business doesn't pay its "fair share." Some knowledgeable people
make this argument but only count the revenue from the corporate franchise
tax. They ignore all the other business taxes - the bank tax, the insurance
tax, the utility tax, the petroleum business tax, health-insurance taxes,
and the parts of the personal income tax, the sales tax and other taxes
that businesses pay.
A
table below shows the true picture. It includes the more than $2 billion
in personal income tax that partnerships, Subchapter S corporations and
sole proprietors pay. It includes the share of the sales tax that businesses
pay, and the taxes on health insurance that employers purchase. When you
add up all the taxes that businesses pay, it amounts to roughly 28 percent
of the total - more than one in every four tax dollars. That share, by
the way, has been relatively constant over time.
Despite the
tax reductions of recent years, business taxes in New York remain far
higher than those in many other states. It's true that business tax collections
are down in some categories. That's because business profits are
down. If you want more tax revenue, we need a stronger, more profitable
private sector - not higher tax rates that will only make it harder for
employers to create profits and jobs.
Cost-shifting
has been built into the Medicaid program for many years. This year's budget
includes some proposals that would shift other new costs onto private
employers. Examples include the Health Department programs that would
be shifted to the Insurance Department, so that costs would be borne by
insurance consumers. Utility ratepayers would face new costs for various
agencies, under another proposal. Another example is the proposal to force
health plans - that is, employers who provide health coverage - to pay
the first $5,000 for early-intervention services. Instead of driving up
the cost, we should find a way to offer employers and their workers a
less expensive health-care option; we have asked the commissioners of
health and insurance to work with us in designing a plan that costs at
least 10 percent less than currently available plans.
Assemblyman
Grannis is among those who have objected to the increase in the insurance
tax included in the proposed Executive Budget. We, too, are deeply
concerned. We believe the proposal is a mistake and hope it will be rectified
as part of the 30-day amendment process. The insurance sector is one of
New York's signature industries, employing more than 100,000 men and women
directly and supporting tens of thousands of additional jobs. In particular,
it is critically important to New York City, and hurting this industry
will only make it more difficult for the city to regain its lost economic
momentum. This proposal must not stand.
Tax
cuts that create jobs
Holding
spending to a responsible level is essential not just to close the current
budget gap, but so that we can enact the additional tax cuts needed
to make New York more competitive for the jobs we need.
The Executive
Budget proposes significant changes in the Empire Zone
program. We agree that improvements and limitations can and should be
made in the program. However, it is important to move carefully because
Empire Zones are our most successful development incentive.
Yesterday,
we met with the father of the Empire Zone program, Speaker Silver, and
we were pleased with what we heard.
Similarly,
we were pleased with the proposal that Senator Bruno outlined yesterday
stating that Empire Zone benefits should continue to be fully financed
through state tax credits. We are concerned that, under mandatory local
cost sharing, many municipalities will be reluctant to designate new zone
areas, due to the impact on existing property tax revenues. Considering
the effectiveness of the EZ incentives in promoting job growth and investments,
we should avoid imposing disincentives against its expanded use by municipalities.
Likewise, we believe that the state budget should assure that municipalities
have adequate resources to implement the zone program.
Looking forward,
The Business Council supports efforts to maximize the effectiveness of
the Empire Zone program in spurring investments, and creating and retaining
jobs. This means: expanding the availability of zone benefits to all counties;
reassessing eligibility criteria to assure that zone benefits are supporting
real economic growth; giving more flexibility in setting zone boundaries
back to municipalities; and making zone benefits available for significant
capital investments necessary to retain existing jobs.
Finally,
to assure the continuity of the EZ program, we urge the legislature to
act this year to extend Empire Zone designations past the current
July 31, 2004 sunset date.
We've talked
previously about reforming our corporate tax code so that we do not penalize
businesses for creating jobs and investing capital in the Empire State.
Experience in other states shows that changing to the single-sales
factor would increase New York's share of the nation's employment
in manufacturing and other key sectors. Respected economists estimate
such a change would bring New York an additional 133,000 jobs. Those jobs,
in turn, would mean more tax revenue, rather than less. We appreciate
the initiatives by Senators Skelos and Alesi, and Assemblymen Morelle
and Schimminger, and urge you to consider this reform as a means to bring
in more revenue this year and in the future.
We support
Governor Pataki's proposal to enhance long-term investment decisions in
our important banking sector by making the Bank Tax permanent.
We also applaud the Governor's proposal to expand the CAPCO
program, which creates additional investment pools for New York entrepreneurs.
On the other
hand, we believe the proposal to impose a surcharge on unemployment
insurance does not make sense at this time - it would drive up
the cost of each job at a time when we need more jobs. In addition, legislation
proposed with the Executive Budget would redirect the remaining General
Fund portion of the Article 9, Section 183 and 184 taxes
to the Dedicated Highway and Bridge Trust Fund starting in fiscal 2004-05.
The telecommunications industry opposes this measure. They believe it
would limit the ability to obtain future tax relief for their customers
should monies associated with this section of the tax law be locked in
to supporting transportation infrastructure.
In tough
times such as these, it's more important than ever that we focus on our
real priorities. One key area where we have worked together in recent
years is working to build research connections between our top-flight
universities and world-class corporations. The Governor's budget
continues that effort. We believe that is a smart approach. Building stronger
connections between university and business researchers is already creating
good new jobs in Albany and throughout the state. If we keep the focus
on these initiatives, we will continue to see important new discoveries,
exciting new products and high-paying new jobs.
K-12 education
is always a priority for the Legislature. As you develop your response
to the governor's proposals, we urge you to target education spending
to those areas where it is most needed. We strongly support the drive
for higher standards in our schools and are happy to
see those efforts paying off.
In these
last few weeks, you have heard from hundreds of New Yorkers about the
need to restore or increase spending on various programs. Clearly, the
dollars are simply not available for you to respond positively to every
request. And our property taxes are already among the highest in the nation
- businesses and homeowners can't afford to pay more.
But you can
free up hundreds of millions, even billions of dollars, for the state
itself and for localities, by enacting the mandate-relief proposals the
Governor included in the Executive Budget.
We strongly
support those proposals. Reforming our prevailing-wage laws
and repealing the Wicks Law could save more than $1 billion
in public construction costs statewide. Why not enact those reforms, and
put those dollars to use where they are most needed?
Lawsuits
against New York City and other municipalities drain hundreds of millions
of taxpayer dollars a year. We support the Governor's proposal to give
municipalities the same sensible legal structure the state has given itself
in the Court of Claims. We also applaud Senator Bruno's
proposals to go further with tort reform. Those changes
would create even more savings for the state and local governments, while
making it easier for businesses to create jobs in New York.
The proposed
budget includes program changes that we believe are good for the state's
economy. We support the Governor's proposal to fully fund the Power
for Jobs program through the New York Power Authority. Another
example is the increase in divisible-load permits. Such
reform will not only bring new economic activity and jobs to the state,
it will also create new revenue. A pretty good bargain.
There may
be opportunities to target spending in ways that increase economic activity
in the state, and thus generate new tax revenue. The nature of tourism
travel has changed significantly for the state and nation in the last
18 months. We have a chance to gain tax revenues for the state if we make
a greater commitment to tourism promotion. But, like research and development,
it takes an investment. The good news is that we can expect to see a return
on investment in the very fiscal year the state needs it. Properly designed
tourism response driven ads will produce revenues for the state and benefit
every region of the state.
A realistic
approach to the Superfund/brownfields issue is one of
the most important things you and the Governor can accomplish for urban
areas from Brooklyn to Buffalo. The proposal in the Executive Budget to
impose heavy new fees will hurt manufacturers. That means it will be especially
costly to the upstate economy. Let's be clear: This is not an issue of
"making the polluter pay." Existing businesses would be taxed to clean
up problems left by others. We look forward to working with you on effective
economic and environmental incentives for brownfield cleanups and redevelopment.
We need to go further to enact sensible liability reforms and set use-based
standards to end the frustrating stalemate over redeveloping valuable
properties all over the state.
The experience
of the last quarter-century - in good times and in bad - has proven that
New York moves ahead when we work to improve the business climate. We
falter when we fail to do so. Let's choose jobs. That will help New Yorkers
directly. And it's the only way we will ever generate the new revenue
we want to support our schools and other vital services.
Thank you
again for the opportunity to speak with you. And congratulations again
on the progress you have made possible in New York State's economy. We
look forward to working with you and Governor Pataki to achieve more progress
in the year ahead.
|
What
Does Business Pay?
Share
of New York State Tax Revenues
|
| |
Projected
Revenues,
FY 2003-04
(Dollars
in millions)
|
| |
Business
share
|
Total
|
From
Business
Taxpayers
|
| Personal
income tax |
10%
|
$23,054
|
$2,305
|
| Sales
and use tax |
25%
|
9,413
|
2,353
|
| Motor
fuel tax |
30%
|
538
|
161
|
| Cigarette/
tobacco tax |
0%
|
446
|
0
|
| Motor
vehicle fees |
40%
|
651
|
260
|
| Alcoholic
beverage |
10%
|
180
|
18
|
| Highway
use |
100%
|
149
|
149
|
| ABC
License |
100%
|
42
|
42
|
| Auto
rental |
50%
|
44
|
0
|
| Corporation
franchise tax |
100%
|
1,796
|
1,796
|
| Corporation
and utilities tax |
100%
|
993
|
993
|
| Insurance
tax |
100%
|
903
|
903
|
| Bank
tax |
100%
|
543
|
543
|
| Petroleum
business tax |
100%
|
1,001
|
1,001
|
| Estate
tax |
0%
|
736
|
0
|
| Real
estate transfer tax |
40%
|
404
|
162
|
| Pari-mutuel
tax |
0%
|
32
|
0
|
| Health
insurance taxes |
65%
|
1,300
|
845
|
| Total
taxes |
$40,928
|
$11,532
|
| Percent
of total paid by business |
28.20%
|
Figures
for total revenues: New York State Executive Budget, 2003-04
Calculations
of business share: The Public Policy Institute |
