With prospects waning for federal aid, New York State faces more pressure to increase taxes to fill the deep budget hole caused by the COVID-19 pandemic.
Gov. Andrew Cuomo has held off on any big fiscal decisions since
The Empire State is now facing an estimated $8 billion budget gap for the 2021 fiscal year and without a major boost out of Washington there will be little choice but to raise taxes, according to Jerry Kremer, president of Empire Government Strategies.
“New York is likely going to be forced to impose new taxes like it or not,” said Kremer, a former longtime state assemblyman from Long Island. “It is not going to be pleasant.”
Progressive-leaning Democratic lawmakers have proposed a series of new taxes on the wealthy to try and combat the state’s revenue woes that Cuomo has so far opposed. The proposals include new taxes on billionaires and those earning at least $5 million along with adding a stock-transfer tax.
Kremer said that while Cuomo has sought to avoid raising taxes on the wealthy because of concerns they could flee the state, the Democratic governor might be forced to go in that direction if New York does not receive adequate aid in the final stimulus bill.
The Republican-controlled U.S. Senate is scheduled to take up a new COVID-19 relief package in the next couple of weeks.
“When your deficit gets into the range of billions there is going to have to be a combination of taxes,” said Kremer, who noted that raising taxes on billionaires and upping the state’s gas tax might be some possibilities. “It’s not going to be made up for in cuts.”
David Friedfel, director of state studies for the independent Citizens Budget Commission, also said new taxes may be unavoidable with the Cuomo administration forecasting a $61 billion state deficit over the next four years.
He said implementing any significant spending cuts this year to make up for a multi-billion dollar shortfall would be politically difficult with legislators facing re-election in November.
“They certainly can’t tax their way out of this, but it would also be tough to cut that amount in the middle of the year,” Friedfel said.
Friedfel said any new tax increase risks hurting New York’s competitiveness and suggested that the state freeze planned middle-class tax cuts scheduled to take effect in January as a temporary measure that could net around $400 million of revenue in fiscal 2022.
He also noted that temporarily suspending New York’s sales tax exemption on clothing items costing less than $110 would also generate around $774 million for 2021 and grow up to $2 billion by 2024.
Moody’s Investors Service and Fitch Ratings both revised New York’s credit outlook to negative from stable in April citing financial headwinds caused by COVID-19. The Empire State’s general obligation bonds are rated Aa1 by Moody’s and AA-plus by Fitch, S&P Global Ratings and Kroll Bond Rating Agency.
Freeman Klopott, a spokesman for the New York State Division of the Budget, noted that the top 2% of New York taxpayers already account for half of the state’s income tax collections with the top 5% comprising around 62%.
“New York State already has the second highest tax on the wealthy in the nation and is contending with a 14% drop in revenue — amounting to $61 billion over four years, “Klopott said. “No tax increase could cover that revenue loss, making it absolutely necessary for the federal government to step up.”
