Law360 (April 27, 2020, 5:35 PM EDT) -- New York's state Senate leader said Monday that she's willing to consider increased taxes on millionaires and billionaires in response to the governor's administration announcing billions of dollars of spending cuts because of revenue shortfalls caused by the coronavirus pandemic.
New York Senate Majority Leader Andrea Stewart-Cousins said a millionaires' tax should not be dismissed as a way to raise state funds because of shortfalls caused by the coronavirus pandemic. (AP)
"I think we all know, again, that we can't tax our way out of this situation, but by the same token we need to assess where we are and what we can do to make sure that we provide the vital services that the state needs and the people expect," Stewart-Cousins said.
The state senator reiterated past statements that the federal government should provide aid to New York because of how badly it's been affected by the virus. But Stewart-Cousins said she didn't want to balance the state budget on the backs of the most vulnerable — students, community organizations or the middle class. Everything has to be looked at in order to make sure there was "shared responsibility" in a recovery, she said, noting the pandemic was an opportunity for the state to look at how it raises resources across the state.
The leader's comments came after the state Division of the Budget announced Saturday a projected $13.3 billion in revenue shortfalls from the state's economic forecast in January, a 14% decrease the division said was directly caused by the COVID-19 pandemic. In response, and absent federal aid, the division said $10.1 billion in spending would be reduced from the state budget, a $7.3 billion reduction from the 2020 fiscal year.
About $8.2 billion of the cuts would come from local aid, which includes resources for health care, K-12 schools, local government, higher education, public transit and nonprofits, the division said. State agency operations would also be reduced by 10%, the division said.
The division released an assessment from the Boston Consulting Group that found New York's economy will lose $243 billion over the course of the state's recovery, a downturn the agency said was deeper and longer than the 2008 recession and the one the state faced after Sept. 11.
"Unlike the federal government, New York state must balance its budget and in the absence of federal assistance, we will have to make deep cuts which could impact a broad range of services," said Robert Mujica, the state budget director. "New York reflects 8% of U.S. GDP, and without federal support, our ability to help lead the nation to economic recovery will be weakened."
Under the state budget passed earlier this month, lawmakers gave Cuomo's budget division director the power to reduce spending without their input unless lawmakers came back to Albany and voted otherwise within 10 days, ceding the power of the purse to the executive branch in response to the uncertain revenue climate. If the Legislature adopts no alternative plan, or if the plan doesn't balance the budget, the budget director's plan would take effect.
The budget didn't include any increases to taxes on the wealthy, something Stewart-Cousins said earlier this month Cuomo was not interested in. Democrats control both Legislative chambers as well as the governor's mansion.
Cuomo's office didn't respond to requests for comment.
Some lawmakers and left-leaning groups were already starting to push back on the proposed cuts without considering new revenue.
Sen. Brad Hoylman, D-Manhattan, said via Twitter that while the federal government needed to help New York, there were "dozens of sensible proposals on the table to tax New York's wealthiest."
"An ultramillionaires' tax. A pied-à-terre tax. Taxes on Wall Street and private jets and private yachts," Hoylman said. "We need to fund the basic functions of government. The wealthy must contribute more."
E.J. McMahon, research director for the fiscally conservative Empire Center for Public Policy, told Law360 via email that it was "far too early" to be talking about increased taxes when spending reductions haven't occurred yet. Any tax hike focused solely on the highest earners would more likely erode a "critical portion" of the state's tax base, one that's already been affected by the federal $10,000 state and local tax deduction cap created by the Tax Cuts and Jobs Act , he said.
"She's talking about a willingness to raise what was supposed to have been a temporary tax hike in the first place — the 'millionaires' tax' having been first imposed during the 2009-11 crisis," McMahon said. "Since the tax is no longer deductible beyond a token amount, the net rate is effectively 40% higher than it was a few years ago (full 8.82% rather than a net-of-deductibility 6.3%)."
John Kaehny, executive director of the open government nonprofit Reinvent Albany, said the Cuomo administration should first go after what he called corporate subsidies that add up to about $4.5 billion annually, including $450 million annually on film and television production tax credits and high-tech manufacturing job subsidies.
"How in the world can New York continue to provide huge handouts to politically favored industries given the damage COVID-19 has done?" Kaehny said.
A coalition of left-leaning groups and elected leaders on Monday held an online press conference, calling on Cuomo to reject cuts, take advantage of federal loans and support a number of tax measures that have been floated before. Those included a pied-à-terre tax, income tax hikes on the wealthy, taxing digital advertising and working with neighbor states to the so-called carried interest loophole, which allows for favorable tax treatment that private equity and hedge fund managers receive on the profits of successful business ventures.
Assemblyman Ron Kim, D-Flushing, said during an online press conference that there is "no real appetite" for raising new revenue by legislative leaders. However, asking for a $20 billion loan from the Federal Reserve was under consideration.
The office of Assembly Speaker Carl Heastie, D-Bronx, didn't respond to requests for comment.
Spokespeople for the Senate and Assembly Republican minority leaders didn't immediately respond to requests for comment.
--Editing by Neil Cohen.
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