In May 2003, President Bush signed the Job and Growth Act, which cut capital gains and dividends taxes and gave $20 billion in state aid to create new jobs. The White House says that since August 2003, over 1.4 million new jobs have been created. Bush would continue tax cuts to encourage job growth.
Bush has not proposed an increase in the federal minimum wage, which is currently $5.15 an hour.
Bush supports the North American Free Trade Agreement and says that it has raised the standard of living of the average American family of four by up to $2,000 a year. (Learn more)
Bush tax cuts will total over $1 trillion dollars over six years. New York City receives about $78 billion in tax relief. Bush plans to continue tax cuts in the future. (Learn more)
John Kerry hopes to create 10 million jobs during his first term as president through a series of tax reforms and small business investments. He proposes eliminating all tax breaks that encourage companies to move jobs overseas. He also proposes a New Jobs Tax Credit to encourage companies to reinvest their foreign earnings in the U.S. He wants to double the number of urban business zones that receive tax incentives. He supports private job training centers and promises to expand opportunities for minority and women owned business. (Learn more)
Kerry supports raising the federal minimum wage from $5.15 to $7 an hour. (Learn more)
Kerry voted for the North American Free Trade Agreement, but says that it may need to be amended to keep jobs in the U.S.
Kerry wants to repeal tax cuts for families with incomes above $200,000, and would not raise taxes for any family making less than $200,000 a year. He also supports a State Tax Relief and Education Fund that will help states so they don’t have to make further cuts or raise taxes. Kerry wants to protect the increases in the child tax credit, the reduced marriage penalty, and the new tax bracket that helps people save $350 on their first level of income. (Learn more)
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After a contentious battle between Mayor Michael Bloomberg and Council Speaker Gifford Miller, the adopted city budget for fiscal year 2005 reflects a number of small victories for both men. The mayor got his $400 property tax rebate for homeowners and maintained city services, and the speaker got a long-sought, progressive city earned income tax credit (EITC), as well as several modest program initiatives.
But the adopted budget ignores several big issues, two of which - looming budget deficits and uncertainties about court-mandated school funding reform - may well threaten services during this new fiscal year.
Another fiscal problem - an inequitable city tax structure - got worse as the speaker's property tax saving plan for renters was abandoned. And the petty bickering between the administration and the council over the meaning of "budget cuts" unnecessarily obfuscated the budget process and may have set the stage for even more contentious political battles over the next sixteen months leading up to the 2006 citywide elections.
Property Tax Rebate and Earned Income Tax Credit
The mayor's win on the property tax rebate means a substantial benefit for lower-income owners, especially seniors on fixed incomes. The victory was somewhat diminished, however, by the late revelation that the rebate could be taxable and a delay in receiving state approval for the rebate itself. The cost of the rebate - about $250 million in the first year - is a lot more than the $50 million cost of the council's new earned-income tax credit.
This tax credit will benefit 700,000 working New Yorkers, who will save up to $215 a year (or an average of about $72), and complement the benefits from the similar (and larger) state and federal credits.
There's no doubt the tax benefits will help many over-burdened residents. But the costs -- $300 million a year in total - and the haphazard nature of their introduction only compound the city's underlying budget deficit.The city's projected deficit for 2006 is currently about $3.7 billion. For 2007 it is $4.5 billion. It will also favor house owners over owners of co-ops and condos (a consequence of the Byzantine property tax system.)
The Ups and Downs of Budget Surpluses
The mayoral and council tax cuts and council restorations and new programs were apparently encouraged by the $1.9 billion surplus in the 2004 fiscal year just ended. The $1.9 billion is an extraordinary $600 million more than the surplus projected just two months earlier in the mayor's executive budget. (Revenues were $600 million higher than projected in April.) Such a surplus is a mixed blessing at best. It helps disguise the fact that the city will spend a lot more money in 2005 than it is bringing in - at least $700 million more, according to a projection by the Independent Budget Office.
The big surplus and the new tax cuts are also eerily reminiscent of the multi-billion dollar budget surpluses during the later years of the Giuliani administration. Those surpluses encouraged Giuliani and the council to introduce multi-billion dollar tax cuts in the late 1990s, a step that in turn contributed to the fiscal turmoil in Mayor Bloomberg's first year as the September 11 attack and a national recession drained revenues. The immediate result of that fiscal crisiswas a $3 billion increase in taxes in one year.
While the new tax cuts are a small fraction of those in the Giuliani era, they set a poor precedent in a time of structural budget imbalance, especially when two of the stabilizing 2003 tax increases (higher personal income tax rates for high earners and the 0.125 percent sales tax increase) are being phased-out, and they make worse the basic mismatch between city spending and city revenues.
Problems for City Services
In addition to its progressive tax initiative, the council not only restored $215 million in services that the mayor had cut; it added about $50 million to five new or existing programs: job training for the long-time unemployed, 1,400 new day care slots, legal services, school class-size reduction, and libraries.
But all new and expanded services - as well as existing services -- are threatened by the underlying budget deficit.
By focusing on tax cuts, the mayor and council seem almost to guarantee that there will be cuts to services in the future. This was an odd choice, since the mayor's major political and fiscal success in the past year has been his ability to minimize service cuts; the adopted budget is notable for its lack of such cuts.
Of course, even at current funding, several services are in effect being cut back, since they do not restore the cuts made in previous budgets. Library spending, for example, dropped from $255 million in 2002 to $230 million in 2004. Now, in the new adopted budget, library funding is at $241 million - more than it was last year, but less than it was three years ago.
In a similar way, as a report from the Independent Budget Office showed, there were cuts of ten percent for the Department for the Aging and for the 34 so-called Cultural Institution Groups (those housed within city property.)
Then there is the prospect the city may have to provide additional funding for education in the final settlement of the Campaign for Fiscal Equity case in state court. According to an Independent Budget Office review of several recent studies, the city's own share of education funding might increase by $950 million to $3.6 billion a year. The report goes on to point out this increase "is nearly twice as much as the city currently spends on parks, cultural affairs, and libraries combined."
The other problem on the service side is the rapid increase in mandated expenditures. Those costs must be paid, throwing more pressure on the discretionary service budget. According to the Independent Budget Office, Medicaid; settlement of lawsuits against the city; and pensions, health care, and other fringe benefits for city workers will grow by $4.7 billion between 2004 and 2008, to $18.9 billion.
Politics and the Deficit
Another odd thing about the adopted budget's focus on tax cuts is its apparent political folly. The 2006 budget will be determined a few months before mayoral and council elections. Reducing budget deficits by tax increases and service cuts is certainly not an attractive option for a mayor running for re-election and a council speaker presumably challenging his re-election. By delaying the hard choices, the mayor and council seem to be flirting with political trouble next year.
If recent history is any guide, one possible scenario is a mid-year budget modification of major proportions, perhaps as early as November 2004. In November 2002, after all, Mayor Bloomberg in little more than two weeks pushed through $2.3 billion in agency cuts and a $1.7 billion property tax increase. The timing precluded any public debate and eased the final deficit reduction planning in the spring of 2003.
The adopted budget for 2005, in other words, is likely to be modified in major ways before the end of the fiscal year. It will be interesting to see how long the political compromises that provided a few small victories in June hold up in the face of the big fiscal problems ahead.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
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Most New Yorkers would probably agree with Mayor Michael Bloomberg when he said that there was "good news" in the city's new $47 billion budget, passed last week and going into effect on July 1st.
The city's economy has improved and for the first time in two years, there were no massive layoffs of police or sanitation workers, no threats to close firehouses or zoos, and no new tax increases. The mayor and the City Council even set aside additional money to build day-care centers, to help the unemployed find jobs, and to build 76 new schools over the next five years.
But the good news did not extend to everyone.
Some critical programs — like summer jobs for young people — were still cut. Teachers, police officers, firefighters and other city workers still have no contracts. And as more details of the budget have emerged, many New Yorkers learned that they may have to give back a portion of their promised $400 tax rebate.
The worst news about the budget does not come from City Hall, but from the State Capitol.
The governor and State Legislature in Albany, which has been called the most dysfunctional legislative body in the nation, have burdened New York City with additional problems. For the 20th year in a row, the state failed to meet its budget deadline. Lawmakers left for summer vacation without complying with a court order requiring them to give more aid to city schools or approving a portion of the city budget that gives tax breaks to residents — and have no plans do so until August.
As a result, the city's budget, which depends on $8 billion in state money, is still in limbo.
This year an improving economy and higher than expected tax revenues produced a $1.9 billion surplus in the city's budget. The major battle between the mayor and the City Council was over how to spend it.
The new $47 billion budget is divided into the usual manner, with nearly 80 percent of the money going to education, social programs like health and homeless services, and police, fire, sanitation, and corrections (in that order.)
In addition to the regular expenses, this budget also includes $291 million in spending that was not in the plan the mayor outlined earlier in the year, including:
"I think the whole city will fare better under this budget," said Washington Heights Councilmember Robert Jackson.
Individual City Council members also lobbied hard for their personal budget requests.
Each council member is given $240,000 to allocate in the neighborhood as they wish. In addition, grants for local initiatives, neighborhood organizations, and cultural events, often called "member items," are part of the mix.
For example, Friends of the High Line, a group working to build a park on an abandoned railway in Chelsea that Speaker Gifford Miller supports, received one of the largest grants of $200,000. A group called Black Veterans for Social Justice received $50,000. And the Garibaldi-Meucci Museum, a cultural institution of Italian-American heritage in Staten Island, was able to secure $15,000. Even the Huskers, a lacrosse team from Far Rockaway got a piece of the pie, with $3,857 for equipement.
Even with a surplus, some budget items still went on the chopping block.
Summer youth employment, for example, was a major point of disagreement between the mayor and the City Council in this year's budget. More than 5,500 jobs for young people were eliminated.
Council members also complained the District Attorneys were not being given adequate funding. The result, they argued, is that prosecutors are often forced to plea bargain cases and to make decisions based on money.
And while tax breaks were given to New Yorkers wealthy enough to own their own home and families who make less than $20,000 a year, there are no tax cuts for those in the middle of the economic ladder.
"I am disappointed we couldn't get tax benefits for renters or the working people who also need it," said Brooklyn Councilmember Tish James.
Police officers, firefighters, and teachers were also left out.
Most city workers have been without a contract or a pay raise for several years, and although the budget contains about $657 million to pay for salary increases, union representatives say that is not enough to pay workers what they deserve.
"If Bloomberg wants a safe city, a well-educated city, a great city, then he has to offer us a fair contract," said Randi Weingarten, head of the teachers union. "We have all waited long enough."
Tax cuts sparked the major debate in this year's city budget.
Both Mayor Bloomberg and Council Speaker Miller who raised property taxes 18.5 percent two years ago produced rival plans to give some of that money back. Mayor Bloomberg proposed giving $400 to each owner of a co-op, condo, or private house. Speaker Miller wanted to reduce the property tax rate for all homeowners and businesses by two percent.
In the end, Mayor Bloomberg's plan won out and Miller agreed to the rebate that he previously described as a "Bush-style gimmick."
"Budgets are the process of compromise," Miller said later. "I think this is the budget in the best interest of the city. Obviously, it wasn't my first choice."
But as more details of the tax rebate began to emerge, some homeowners learned that they might have to pay taxes on their refund.
That is because the $400 rebate is not an actual reduction in the tax rate, but a check from the city that some New Yorkers may have to report as taxable income. A homeowner who claims property taxes as a deduction and is in a 25 percent income tax bracket, for example, could have to pay as much as $100 in federal income taxes on the $400 rebate.
For his part of the negotiations, Speaker Miller was able to secure a city version of the Earned Income Tax Credit that will give 700,000 low-income New Yorkers up to $215 in tax relief.
Together the two tax relief plans will cost the city $300 million.
But both of these plans have been delayed because the city needs state approval to raise and lower taxes and state legislators in Albany refused to approve the measures. Governor George Pataki, Assembly Speaker Sheldon Silver, and State Senate Leader Joseph Bruno all said they supported the idea in general, but the three men could not work out the details to pass it by the deadline.
"It is an aberration of the law that we need to go to Albany to adjust our own taxes," said Mayor Bloomberg.
If the state passes the measure in August, New Yorkers could get their rebate by October. If not, they may have to wait even longer.
New York City is required by law to pass a balanced budget each year by July 1, but there is no such law requiring the governor and the State Legislature to do the same.
This year, the usual gridlock in Albany was even worse than usual. State lawmakers missed their April 1 deadline to pass a $100 billion state budget and have no plans to meet again until August.
Albany's inaction has put New York City's budget on hold.
A plan to transfer private bus lines to the Metropolitan Transportation Authority, which will cost the city about $159 million, is delayed.
In addition to the city's operating budget, which covers the day-to-day expenses of running the city, the mayor and City Council approved a separate $13 billion, 5-year capital budget plan to build and improve schools across the city. The city has asked the State Legislature to pay for half of it, but no agreement has been reached.
And even though the state's highest court has ruled that the state system of funding schools is unfair and gave legislators until July 30 to provide more aid to New York City schools, lawmakers have not agreed on a plan to do so. This means that the city is missing out on $2.5 billion a year in school aid, according to estimates from the Independent Budget Office, and many of Mayor Bloomberg's education reforms are dependent on this additional money. Until the funding comes through, city officials are trying to make do.
"Obviously until we get [this] money from Albany it's not as if we have lots of resources to move," said Schools Chancellor Joel Klein.
For the time being, the governor has passed an emergency spending measure that keeps funding for programs at their current levels, but no one knows when the state will get around to passing a real plan that accounts for about 17 percent of the city budget.
"In the immediate short-term it is not a problem," said Doug Turetsky of the Independent Budget Office, "But if it drags on for months and months, state aid becomes a more serious question."
But even if Albany does come through, the city still faces serious challenges in the next two years.
Earlier this year, the New York State Financial Control Board reviewed Mayor Bloomberg's proposed budget and found that the "city's finances remain structurally unbalanced."
Medicaid payments, employee pensions, and union contracts are expected to increase dramatically in the future. The city is also relying heavily on temporary increases to the personal income and sales taxes that will expire over the next two years. Fiscal watchdogs warned the mayor and the council that their tax breaks and increases in spending could create problems in the future.
This year's surplus of $1.9 billion is expected to turn into a $3.7 billion deficit by next summer.
That means that cuts to social programs, layoffs, and tax increases: The "doomsday" budgets of the past two years may return.