State of the Week: NEW YORK
By SBE Council at 13 April, 2017, 4:28 pm
by Raymond J. Keating-
Small Business Policy Index 2017: New York ranked 48th among the 50 states.
SBE Council’s “Small Business Policy Index 2017” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.
Small Business Tax Index 2016: New York ranked 45th among the 50 states.
SBE Council’s “Small Business Tax Index 2016” ranks the states according to 25 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.
More Bad Policy Decisions in the Empire State
Ranking third worst on the “Small Business Policy Index 2017” and sixth worst on the “Small Business Tax Index 2016,” New York has long faced serious problems in terms of hoisting massive costs on the backs of entrepreneurs, businesses, investors and employees. Unfortunately, matters just got worse with the passage of a state budget.
Consider, for example, that New York imposes high personal income, individual capital gains, corporate income, corporate capital gains, property, consumption-based, gas, diesel and wireless taxes. In addition, New York has a death tax, the most burdensome energy regulations, high workers’ compensation costs, a high level of state and local government employment, the second highest level of state and local government spending, the highest level and state and local government debt, very poor protections against eminent domain abuses, an added minimum wage mandate, and is not a right-to-work state.
This mess needs to be acknowledged by the state’s elected officials, and efforts must get under way to start doing the long, hard work of reducing these enormous barriers to opportunity, economic growth, and job creation.
Instead, though, a state budget was just passed that does the exact opposite. Three key points about the New York budget are instructive.
Effective Increase in Top Personal Income Tax Rate
First, a so-called “temporary millionaire’s tax” was set to expire at the end of this year, dropping the state’s top personal income and individual capital gains tax rate from 8.82 percent to 6.85 percent. However, the new state budget raises taxes by extending the top rate for two more years, now supposedly scheduled for expiration at the end of 2019. Draining resources from the private sector and reducing incentives for risk taking via high taxes on upper-income earner is the path to further economic stagnation.
Corporate Tax Rate Increase
Second, back in 2014, state lawmakers voted to reform and reduce the state’s corporate income tax, with the rate going from 7.1 percent to 6.5 percent in 2016. Sounds good, however, also in 2014, state elected officials made the downstate temporary MTA business tax surcharge permanent, and raised it from 17 percent to 25.6 percent in 2015. After that, changes in the surcharge would be controlled by the state’s tax commissioner. It was hiked to 28 percent in 2016, and to 28.3 percent this year. So, under corporate income tax reform in New York, the corporate tax rate on downstate businesses actually increased from 8.307 percent in 2014 to 8.34 percent. Only in New York. And leaving decisions regarding the corporate income tax to a state bureaucrat was a breathtaking abandonment of legislative responsibility.
More Government Spending
Third, the emphasis in the just-passed state budget clearly is on new and expanded government spending programs, such as “free” tuition at public colleges to those earning up to $125,000 a year. Interestingly, state officials, including Governor Andrew Cuomo and his budget office, still emphasize that spending will rise by only 2 percent in terms of state operating funds. However, this measure conveniently excludes some 35 percent of the dollars spent by New York state government. When considering spending in all funds, expenditures will rise by 4 percent.
New York’s Lost Economic Opportunity
New York remains firmly committed to its old and tired tax-and-spend budget model, and as a result, the state will continue to reduce economic opportunity, chase away entrepreneurs and investors, and lose population to other states. Consider that from 2010 to 2016, New York lost 847,000 people net to other states. In a sense, New York’s top export continues to be people. If that is ever going to be reversed, then elected officials need to reverse their destructive policies of high taxes, onerous regulations and excessive government spending.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.