Gov. Cuomo (photo: Don Pollard/Governor's Office)
When the dust settles on the 2018 elections, whoever is governing the state will be faced with problems like what to do about NYCHA and the MTA, and how New York should respond to climate change, among many others. Another pressing issue that has been an area of focus in many campaigns around the state, from the governor’s race through those for the state Senate, is taxes, and what the next governor and Legislature will or won’t do about them in a number of ways, including the ongoing question of how New York must adjust to the new federal tax code.
Though proposals and arguments have often been hazy, the issue of taxes has been among the most discussed this election season and will be a topic of significant debate when the new state government starts doing business in January. The contours of those discussions and the actual proposals put forward will vary greatly depending on the outcomes of the governor’s race and which party controls the state Senate (the Assembly is home to an overwhelming Democratic majority).
Marc Molinaro, the Republican nominee for governor, has pitched his candidacy largely based on a plan that he says will lead to a 30 percent reduction in property taxes for New Yorkers over five years, but the party’s state Senate conference, hoping to cling to a one-seat majority during a promising year for the opposition, has mostly stuck to arguing that Democrats will increase taxes to previously unseen levels if given full control of state government.
For their part, Democrats have been quieter on taxes, with Governor Andrew Cuomo promising to extend the state’s property tax cap and keep state spending to two percent annual increases, even as some members of his party’s Senate slate push for things like state-run single-payer healthcare and a polluter’s tax -- neither of which Cuomo supports. Running for a third term, Cuomo has said little else about taxes, despite the fact that his attempts to thwart the impact of the federal tax reform have thus far not panned out, the state’s current millionaires tax is set to expire next year, the state is facing upcoming budget gaps, and the state-run MTA is in need of tens of billions of dollars to get the New York City subway system functioning properly.
Molinaro has made broad tax reform one of the centerpieces of his campaign, along with restoring trust in government and generally being a governor who isn’t followed by corruption investigations. His tax plan proposes reductions across the board, from the end of the millionaires tax to an expansion of the earned income tax credit to childless workers and noncustodial parents and the indexing the state’s income tax brackets, standard deduction and dependent exemptions to inflation (a move that Molinaro says prevents a filer’s tax bracket increasing due to inflation without any real change in their earning power).
Molinaro wants to limit annual state spending increases to three percent, but wants that cap codified into state law, unlike Cuomo’s two percent cap, which is self-imposed and the governor, despite his claims to the contrary, has not completely kept to.
The Dutchess county executive’s plan has “a lot of good elements in it and establishes some very worthy and desirable goals,” according to E.J. McMahon, the founder and research director of the conservative Empire Center of New York, although McMahon said he didn’t think the math behind the plan added up to the promised 30 percent reduction in property taxes. Asked repeatedly throughout the campaign, Molinaro has not laid out exactly how he would get there, only promising in broad terms to modernize state government, find efficiencies, and more effectively deliver services.
On the Democratic side, clarity also doesn’t come easy. Cuomo’s priorities on socially liberal but fiscally moderate governance can be seen most clearly in something like his Long Island Senate Democratic Agenda, but even that plan lacks specifics and has seemingly competing priorities. On the one hand, the agenda lays out a promise to keep the two percent property tax cap and the two percent spending cap going, while also promising “historic tax cuts.” On the other hand, there are promises to include Long Island in increased infrastructure, education, and economic development funding.
Cuomo has resisted calls for a New York City-based addition to the millionaires tax, recently pitting his philosophy against Mayor Bill de Blasio in sarcastic terms, saying, “'[W]ell, ideally we would like to have a millionaires tax.' Yes, I wish I could be an elected official who lived in the ideal,” at a gathering of the Association for A Better New York, a business group. He also explicitly cast himself as a different kind of politician than legislators and local politicians “who like to spend” at a speech in front of the Business Council of New York, boasting that he has overseen lower year-over-year state spending increases than previous governors including Republicans and his father.
Part of the lack of clarity on the Democratic side has to do with the uncertainty of where the party will be after the general election. A newly won Senate majority may rely on seats outside New York City, which would require a collaboration of city, suburban, and upstate interests that don’t always align perfectly. And even as Democrats in swing districts run on platforms that include single-payer healthcare in New York, they are pledging not to increase the taxes that would fund it, and many are seeking to represent high-tax Long Island and north-of-the-city areas very sensitive to any additional tax increases and another election right around the corner in 2020, when all the seats in the Legislature will again be on the ballot.
“I think out of the gate you're gonna see a Senate Democratic Conference that's gonna correct some of the wrongs, the missed opportunities by the Senate Republicans like voting reform and gun control, women's health,” Democratic state Senate spokesperson Mike Murphy told Gotham Gazette, suggesting the party would focus on progressive social issues at the beginning of the 2019 session if in the majority. And even as the New York Health Act that would establish state single-payer health care emerged as a hot issue for New York City progressives, among other Democrats, they will have the state’s expiring laws around rent control to deal with next year, and candidates outside of the city, like the Hudson Valley’s Pete Harckham, want much of a full two-year term to work out how a single-payer program would look, or to craft a universal health insurance program compromise with Cuomo.
On the issues of the new federal limitations on state and local tax (SALT) deductions, which dramatically affects high-tax states like New York, the state has joined with other Democratic states to sue the federal government over the $10,000 cap that was included in federal tax reform efforts, in part on the grounds that they were targeted after not voting for Donald Trump for president. At the same time, the IRS has blocked efforts by New York and other states to get around the deduction cap by limiting the federal tax credit taxpayers would get by “donating” their property tax payments to charitable organizations designed to accept the taxes.
Cuomo has been otherwise quiet about how he would solve the issue of the SALT deduction problem, which is likely to most acutely hurt high earners as well as suburban middle and upper middle class property owners, though he has said one goal is for Democrats to recapture control of the federal government and repeal the deduction cap.
The governor has been silent on the question of whether the millionaires tax will be allowed to sunset next year as its currently designed to -- it has been extended multiple times under Cuomo, in partnership with a split Legislature, and there is a significant question around how the state would make up for the revenue if it is not extended. On the other hand, it affects many individuals and families that will be paying higher taxes given the new SALT cap, and Cuomo and others have expressed concern about high-income individuals leaving the state. Cuomo’s campaign did not provide an answer to multiple Gotham Gazette inquiries about the governor’s stance on the millionaires tax.
Molinaro has said he would let the millionaires tax expire.
His plan on the SALT deduction cap is to get rid of New York’s “tax benefit recapture” policy, a practice that charges the highest marginal tax rate for taxpayers above a certain income band, for New Yorkers making between $107,650 and $323,200, thus addressing some of the lost deductions for those earners.
Tax shifts rather than cuts or increases are the most common kinds of plans on the table from both parties. On the Democratic side, Long Island’s John Brooks, running for reelection in a swing district, has offered up a plan that he says would allow areas like Long Island to get out from under high property tax bills related to education spending by capping the amount of school funding coming from property taxes at 50 percent, with any budget needs above 50 percent picked up by the state.
“What Brooks is saying is we need to lower your taxes by finding someone else to pay them. But if you're in Long Island, there is no ‘someone else,’ it's you, you have the higher average incomes,” McMahon said in reaction to the proposal.
For Republicans, requiring the state government to pick up Medicaid costs from local governments is something that Molinaro and state Senate Republicans are running on (to the delight of local editorial boards). It would cost $7 to $8 billion, and require either new or higher taxes or a reduction in the actual delivered services according to a Citizens Budget Commission study on the shift (Cuomo has mocked it as an unserious proposal). But the state Senate conference has also endorsed the idea of exempting seniors from paying property taxes, arguing that since they don’t make use of the schools, they shouldn’t pay to keep them running. It’s a proposition McMahon has panned before and he compared it unfavorably to Brooks’ plan as irresponsible and unfeasible. “How is that fair to a working couple with three or four kids living paycheck to paycheck, and the retired couple next door get to pay no property tax? Are you kidding?”