Welcome to the governor’s office, Ms. Hochul. Unfortunately, congratulations are hardly appropriate; in fact, congratulations seem much more appropriate.
I suppose you know that the last round of tax legislation passed by the Democratic-controlled Assembly and the Senate in April – veto-proof super majorities in both chambers – resulted in a tax burden that New York companies and their owners barely deserve, and there comes a time when the federal tax environment in which they operate threatens to become downright hostile.
Do you have a different opinion? The proposed increase in the long-term capital gains rate from 20% to 39.6%, the abolition of the increase in the assets transferred in the event of the death of an individual taxpayer, the tax treatment of the assets transferred in the event of death as a sale, the increase in the corporate tax rate which is well above the rates imposed by other countries on corporate competitors, the abolition of exchanges of a similar nature, the expansion of the application of wage taxes.
Add to this the damage already caused by the New York budget for 2021-2022: an increased corporate tax rate (from 6.75% to 7.25%), reintroduction of the alternative tax on corporate capital, addition of profits from opportunity zones that The federal government excludes income, new income tax brackets from 9.65% to 10.9% (the highest rate was previously 8.82%).
And don’t forget NYC. Although recent legislation has had no impact on the city’s tax rules, the city’s tax rates remain high: a corporate tax rate of 8.85% and an individual tax rate of 3.876%.
Please do the math. How long will business owners tolerate the combined burden of these three tax jurisdictions, especially if these owners are also demonized by the government despite funding a disproportionate amount of tax revenue?
The foregoing is a recipe for disaster.
Do you imagine the New York Legislature, encouraged by the departure of Mr Cuomo, deciding to pursue one of the other tax proposals that were removed from the budget as a result of the deal with Mr Cuomo? Increase in the inheritance tax rate from 16% to 20%, introduction of a special income tax of 1% in addition to the regular rate on such profits, revival of the real estate transfer tax, introduction of a property tax, introduction of an annual mark-to-market tax on capital assets, introduction of an inheritance tax, reintroduction the gift tax and more. It doesn’t take much effort to dust them off.
And don’t forget one of the justifications for these increases: to cover the revenue shortfalls caused by the pandemic shutdown of the economy in 2020. For real? (The other, of course, was to get the rich to pay an even more disproportionate share of the state budget. I assume you are familiar with the recently published Urban Brookings report – over 40% of American households paid during the five years prior to the Epidemic, that number rose to 60% in 2020, and it is expected to be close to 60% this year.)
I assume you’ve read enough of the news to know that the so-called shortfall barely lived up to its hype, and that the Fed’s economic generosity towards Albany was unnecessary (and largely untapped).
If you asked me – and I know you won’t, but if you do – I would make some suggestions for changes in tax policy and certain provisions of state tax law. For example:
- Eliminate sales tax – let it rest
- Lowering income and corporate tax rates – the fact that we came out pretty well from the 2020 closings supports such a move and could stem the outflow of people who can pay taxes (as opposed to those who don’t, but theirs Attendance) – although it gives some people votes and seats in Congress – must be subsidized by taxpayers.)
- If the Feds get rid of similar exchanges, decouple yourself from the Feds – keep the provision alive in New York; simultaneously take California’s position in relation to such exchanges: they should only be viewed as tax deferred transactions if the replacement property is also in New York
- Elimination of the “employer convenience” rule; are working with New Jersey and Connecticut to develop a system that will benefit all three jurisdictions – it’s a matter of fairness – we need to start thinking regionally
- Recognition of the election to “S Corporation” in NYC; Alternatively, S Corps shareholders can reduce their taxable income by NYC corporation tax to help determine their personal income tax
- Reduction in inheritance tax rates, elimination of clawbacks for gifts within three years of death, transferability of the New York tax allowance between spouses – in other words, give people a reason to stay in New York
- Provide clearer guidelines for giving up New York residence – taxpayers shouldn’t have to spend as much money as they would on professional royalties trying to leave the state with no certainty of outcome – it only creates resentment towards the state and its agents ; Alternatively, consider a graduated one-off exit or exit tax
- Impose a “tax” on well-equipped private universities – so that public universities support them
- Fight tax fraud – send a message – step up cooperation with the IRS
- Take a long-term approach to legislation – companies want security, they need continuity; the rules should not be changed on a political whim.
That’s all for now. I’ll get in touch if I can think of anything else.
You certainly have a lot on your plate – not to mention moving into your new booth – but if you have any questions or comments, please feel free to call me.
Good luck, Lou