With the New York state government facing a budgetary disaster, Gov. David Paterson (D) has proposed raising more than $1 billion in new taxes and fees coupled with small spending cuts.
Paterson’s proposed budget has run into intense opposition from state house legislators worried it does nothing to increase New York’s global competitiveness. Experts are concerned the budget will not lead to more jobs for New Yorkers.
The budget proposal totals $121 billion in spending, with a deficit of $7.4 billion.
Taxes and fees would go up on a host of items, including movie tickets, taxi rides, soda, beer, wine, cigars, and music downloads and other digitally downloaded entertainment. New York is already one of the most heavily taxed states in the nation.
Driving People Out
Paterson’s proposed budget could drive out more of New York’s most productive citizens, says Curtis Dubay, a budget expert at the Heritage Foundation in Washington, DC.
“It is fairly obvious that New York has been driving away productive people for a long time, but now it will accelerate,” Dubay said. “[Paterson’s budget] will further the pilgrimage of highly productive people to other states. This will be especially true of New York’s financial industry.”
Dubay said this is because people no longer need a physical presence in New York to work in the financial industry, as a result of the Internet and advances in telecommunications.
“More businesses and highly productive New Yorkers are going to head off to London, Hong Kong, and Southeast Asia,” Dubay said. “Gov. Paterson’s budget plan has made a bad situation worse.”
High Spending, High Taxes
Kail Padgitt, a budget analyst at the nonpartisan Tax Foundation, explains part of Paterson’s problem is that New York state spends too much money.
“New York has a high amount of government spending,” Padgitt said. “New York spends 33 percent more per capita than the U.S. average. When your spending is this high, your taxes will have to be high as well.”
Padgitt says Paterson’s budget proposal fails to address problems with New York state’s tax code, which generates revenue in an ineffective way, furthering the need to raise taxes. High income tax rate brackets are a big part of the problem, according to Padgitt.
“New York has those two high personal income brackets on high-income earners. Remember that a lot of the income earned at that level doesn’t come from wages but rather capital gains and investments. These high tax rates can have a negative effect on people’s investment decisions,” he said. “Additionally, the corporate income tax rate is high as well. Patterson’s budget does not attempt to go after those problems in a real way.”
Business Tax Credits Forecast
Dubay said he expects Paterson, with his eye on reelection, to propose business tax credits soon in an attempt to mitigate job losses from his tax increases. Dubay sees such tax credits as a bad trend among high-tax states.
“What is interesting is that we see that in a lot of places like New Jersey, New York, Connecticut, Oregon, Massachusetts, and Rhode Island, extremely progressive income tax systems which have punitive taxes against high-earners,” Dubay said. “Also in these states we see politicians regularly demonizing high-earners, declaring they must ‘pay their fair share.’ Effectively, these states drive away productive individuals and businesses to other states.
“However, to mitigate the effects of this, governors often then offer tax credits to get some jobs ‘created’. So they create a tax code that results in thousands and thousands of job losses, but they have tax credits that ‘create’ some jobs which governors can tout in advertisements.”
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.