A New York State commission recently recommended a major revision to the state’s taxes.
Gov. Andrew Cuomo set up the New York State Tax Reform and Fairness Commission in 2012. It was charged with coming up with revenue-neutral proposals to make the state’s taxes simpler and more equitable.
To modernize the sales tax while funding low- and middle-income tax relief and overall real property tax relief, the commission made four sets of recommendations.
In one version the state would repeal the exemption on clothing and shoes (raising $800 million of revenue) and counterbalance this by lowering taxes on low and middle income levels (losing $400 million) and lowering property taxes (losing $400 million).
In another version, sales taxes would be expanded to cover a wide array of services and arts admissions (generating $446 million) and the $2-per-gallon cap on gasoline taxes would be eliminated (generating $371 million). These revenue increases would be offset by the establishment of a tax reduction reserve fund for possible future tax relief.
The commission also recommended changes to the estate and other wealth-related taxes to reduce the migration of wealthy elderly New Yorkers to other states. It recommended lifting the estate tax exemption from $1 million to $3 million (losing $300 million in state revenues), creating a gift tax (generating $150 million) and closing the “resident trust loophole” (generating $150 million).
The reform of the threshold for an estate tax might reduce the number of retired wealthy New Yorkers who choose to move out of state, said Evercore director of municipal research Howard Cure. More wealthy retired people remaining in state might increase the demand for tax-exempt municipal bonds.
In the United States 17 states tax inheritances and just two of these have lower thresholds than New York.
If the state’s revenues were to depend more heavily on a broad-based sales tax rather than the income tax, than income tax rates might decline slightly, Cure said. The decline of this rate might reduce people’s interest in buying munis, he said. However, this effect is likely to be minimal.
“If these recommendations were enacted, I don’t think they would have a huge impact on muni bonds,” Cure said.
“Since being elected governor, my administration has focused on reversing New York’s negative tax reputation, further improving our business climate and easing the burden on everyday taxpayers,” Cuomo said in a Nov. 14 statement. “Today’s report represents another step in that direction as we seek to simplify New York’s antiquated and unnecessarily onerous tax code, and to ease the tax burden on families and businesses statewide.”
The report will be shared with the New York State Tax Relief Commission, co-chaired by former New York comptroller H. Carl McCall and former New York Gov. George Pataki. According to the Cuomo administration, the Tax Relief Commission is working to help identify ways to reduce the state’s property and business tax, and will provide recommendations for consideration for the governor’s 2014 State of the State speech.