The Business Council of New York State, Inc. this week testified in front of the Senate Finance and Assembly Ways and Means Committees hearing focused on budget issues important to the state’s business community (full testimony can be found here).
The most significant new business cost that would result from the Executive Budget is its proposed minimum wage increase. In fact, it may be the single most costly legislative proposal ever considered by the state legislature, with a projected cost of $15.7 billion per year once fully implemented.
From our testimony: “No matter how well-intentioned the $15 minimum wage legislation might be, it will have unintended and adverse job impacts, especially in upstate New York, where some regional economies are still struggling to recover jobs lost in the 2009 recession. It would result in a $14,400 per job per year cost increase, on a full time equivalent basis, when you consider the direct payroll cost increases (20 and 31 percent, respectively), as well as the resultant increases in federal social security and Medicare taxes, and the increased costs of mandated state-level unemployment taxes and workers’ compensation coverage. This proposal could also have a significant cost to the state budget, caused by increased reimbursement rates in the health and social services areas, and these and other impacts do not seem to be reflected in the proposed budget or fiscal plan.”
The Executive Budget contains several important tax reform proposals, and we are recommending a number of additional reform proposals and technical amendments that will address unintended consequences in the state’s tax code and have a minimal impact on projected state revenues.
Small business tax rate reduction – We support the Executive Budget proposal (S.6409/A.9009, Part R) for small business tax relief under both the corporate franchise tax and the personal income tax. This proposal would:
- Reduce the entire net income based tax rate for small business under the corporate franchise tax from 6.5 percent to 4 percent, effective for the 2017 tax year. This rate reduction applies to incorporated small businesses with fewer than 100 employees and less than $1 million in capital, and with a business income base under $290,000. The rate reduction phases out for taxpayers with business income base under $390,000.
- Expand the personal income tax business income exclusion from 5 percent to 15 percent and make the exclusion available for members, partners, and shareholders of LLCs, partnerships and sub-S corps, in addition to sole proprietors. It is currently applicable for taxpayers with net business or farm income under $250,000 and where the income is derived from an entity with gross business income under $1.5 million (or $250,000 for a farm business.)
Combined, these two components would provide about $300 million in annual tax relief to small business.
We support this approach, and agree with its basic structure. However, we would recommend increasing the income cap under both proposals, to at least $500,000. This proposal is a necessary next step in business tax reform. The 2014 CFR reforms, and the 2015 New York City conformance legislation mostly addressed tax issues affecting public traded corporations. Most small business are set up as pass-through entities that pay the bulk of their business income tax under the personal income tax.
Paid family leave
We have a number of concerns with the Executive Budget proposal on paid family leave (S.6405/A.9005, Part H.) It represents a significant departure from the federal Family Medical Leave Act by applying to all employers. Congress, when contemplating the FMLA, gave great consideration to the burdens such a law would put on small employers. The reinstatement provisions alone – holding a job for up to 12 weeks – were deemed too burdensome for small employers. Congress wisely settled on a 50-employee threshold. Small employer operations would certainly be severely disrupted by providing such lengthy leave. Likewise, definitions provided in the bill are inconsistent with those in the FMLA. Specifically the definitions regarding “family member” and “serious health condition” would require an employer of 50 or more to manage multiple programs with different rules in order to remain in compliance.
Upon return from FMLA leave, an employee must be restored to his or her original job, or to an "equivalent" job, which would be virtually identical to the original job in terms of pay, benefits, and other employment terms and conditions. Again, the Governor’s proposal of reinstatement to a “same or comparable” position may conflict with long-established FMLA definitions and result in duplicative administrative burdens.
The Executive Budget proposes that the paid leave “should’ be funded by employee payroll contributions. The proposal, however, gives great discretion to the Department of Financial Services to determine the type and cost of insurance coverages available and the employee contribution to the cost. There is no guarantee there will not be future employer costs for providing this benefit.
Finally, under this proposal, an employee would be eligible for full paid benefits after just four weeks of employment. Again, Congress – in considering the FMLA – identified that a longer period of employment should be required to demonstrate employee commitment to the job and the employer. Congress applies a one year (1,250 hour) employment requirement, which is something we support.
Earlier this week the state Assembly passed their own version of Paid family leave, here is our memo in opposition.
The Business Council of New York State Inc. will continue to meet with the executive, lawmakers and our members to ensure the final enacted budget is one that maintains the fiscal discipline of recent years, while mitigating costly mandates on business.