The New York State budget approved this April provided the lowest funding increase for public schools in the last five years, about 4.1% State Public School Aid Increases:
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The budget was prudent given the risks posed by the Trump administration, but revenue losses from recently enacted tax cuts are actually squeezing the State’s revenue base. Although a higher rate for multimillionaires (taxpayers making more than $2.1 million/yr), was renewed, that money was essential just to preserve the funding necessary to meet basic public needs. There were certainly positives in the State budget, like the new middle-class college tuition benefit, but this improvement is not costly and is being phased in. Many big State projects are really in the Capital budget and are long-term in nature. They are being funded by the $9 ½ billion the State received in litigation with the financial industry related to the recession, or are being paid for with borrowed funds. These programs are funding priorities like housing, economic development, and infrastructure. The operating budget has more limitations.
Tax cuts enacted in 2014,2015, and 2016 will drain the State of $2 ½ billion a year by 2018 and more in later years. The Republican Senate pushed a new “ middle-class tax cut “ in the State budget negotiations in 2016, and it was agreed to by Cuomo and the Assembly. The revenue loss is small this year but grows to $1.07 billion in 2018 and $1.5 billion in 2019. The top rates are cut from 6.85 to 6% or 5.5% and spread out through 2025, by which time the revenue reductions are estimated at $4.2 billion a year. “ Middle-class “ includes married taxpayers filing jointly at $300,000 a year and down.
Revenue losses from other recent tax cuts are also still growing. In 2014 New York reduced its corporate income tax, the estate tax, and abolished the State corporate income tax for manufacturers. Those reductions have been ongoing, and grow by $180 million this year and another $180 million next year (FY-18-19). The tax breaks for manufacturers cost $300 million a year but took effect by 2015. Another homeowner property tax break was enacted in 2015, a new “STAR rebate” valued at $450 million a year. The money goes out as checks only to homeowners outside New York City. In 2018 incremental revenue losses from the tax cuts will drain $1.25 billion from the State’s treasury compared just to 2017. That is the main reason spending is moderating.
The income tax cut in 2016 was actually “ middle-class” income tax cut number two of the Cuomo administration. The first one took place in December 2011, when Cuomo called the legislature back to a special session concerned about a growing deficit while revenue from the recession-related income tax increases on the wealthy were expiring. Cuomo cut a deal with the Republicans to enact a partial cut in the unpopular MTA payroll tax and an income tax cut for middle-class taxpayers, in exchange for keeping the recession-based high rate for the super-wealthy(taxpayers over $2 million a year). While a high rate for the super-wealthy preserved some revenue, the higher rates enacted during the recession started at $300,000 for married taxpayers filing jointly. As a result, taxpayers between $300,000 and $2 million had their income tax rates drop in 2012 back to the pre-recession rates. Taxpayers below those incomes had their rates drop further. Revenue losses from the drop back to the old rates for these “ mid-level but not super- wealthy “ taxpayers were $2 billion a year, and the new “middle-class “ rate drop reduced revenue by another $690 million.
Tax cuts in New York have a rationale : improving the business environment, or just providing relief to burdened ordinary people. The problem is striking a balance between revenue losses, meeting basic public needs and addressing income inequality. To its credit, the State Assembly has recognized the need to reclaim some revenue to assure adequate resources for the future. It has passed an increase in the rates for taxpayers who make over $1 million a year, but the Republican-controlled Senate won’t touch that proposal . In fact, the Democrats were lucky to get the extension on the $2.1 million plus group this year.
Sources include reports from the NY State Division of the Budget, the State Comptroller, the NY State Assembly and the NY State Senate. For further info you may contact me at email@example.com