Welcome to the Governor’s office, Ms. Hochul. Unfortunately, congratulations are hardly in order; indeed, a wish for good luck seems much more appropriate.
I suppose you realize that the last round of tax legislation, enacted in April by the Democratic-controlled Assembly and Senate – veto-proof super majorities in both Chambers – resulted in a tax burden that New York businesses and their owners hardly deserve, and it comes at a time when the federal tax environment in which they operate is threatening to become downright hostile.
Do you disagree? The proposed increase in the long-term capital gain rate from 20% to 39.6%, the elimination of the basis step-up for property transferred at the death of an individual taxpayer, the treatment of property transferred at death as sale for tax purposes, the increase in the corporate income tax rate well over the rates imposed by other countries on corporate competitors, the elimination of the like kind exchange, the expanded application of employment taxes.
Add to this the damage already caused by New York’s 2021-2022 budget: an increased corporate tax rate (from 6.75% to 7.25%), reinstatement of the alternative tax on business capital, add-back of opportunity zone gains that are excluded from federal income, new personal income tax brackets ranging from 9.65% to 10.9% (the highest rate was previously 8.82%).
And don’t forget NYC. Although the recent legislation did not affect the City’s tax rules, its tax rates remain high: a corporate rate of 8.85% and an individual rate of 3.876%.
Do the math, please. How long will business owners tolerate the combined burden of these three taxing jurisdictions, especially when these owners are also being demonized by government notwithstanding they fund a disproportionately large portion of tax revenues?
The foregoing is a recipe for disaster.
Imagine if the New York Legislature, emboldened by Mr. Cuomo’s departure, decides to pursue any of the other tax proposals that were omitted from the Budget pursuant to the deal struck with Mr. Cuomo? Increasing the estate tax rate from 16% to 20%, imposing a special 1% capital gains tax in addition to the regular rate imposed on such gains, reviving the stock transfer tax, imposing a pied-a-terre tax, imposing an annual mark-to-market tax on capital assets, introducing an inheritance tax, reintroducing the gift tax, and more. It won’t take much effort to dust those off.
And don’t forget one of the justifications given for these increases: to cover the revenue shortfalls arising from the pandemic-related closure of the economy during 2020. Really? (Of course, the other was to make the rich pay an even more disproportionate share of the State’s budget. I suppose you’re aware of the recently released Urban-Brookings report – over 40% of American households paid no federal income tax during the five years preceding the epidemic, that figure rose to 60% in 2020, and it is expected to come in at just under 60% this year.)
I assume you’ve been reading enough of the news to know that the so-called shortfall hardly lived up to its hype, and that the fed’s economic largesse to Albany was unnecessary (and remains largely unspent).
If you were to ask me – and I know you won’t, but if you were – I’d make some suggestions for changes in tax policy and in certain provisions of the State’s tax law. For example:
- Eliminate the stock transfer tax – put it to rest already
- Reduce the personal and corporate income tax rates – the fact we emerged in pretty good shape from the closures of 2020 supports such a move and may stem the outflow of individuals who can pay taxes (as opposed to those who don’t pay but whose presence – though it provides votes and seats in Congress for some folks – must be subsidized by taxpayers.)
- If the Feds eliminate the like kind exchange, decouple from the Feds – keep the provision alive in New York; at the same time, adopt California’s position with respect to such exchanges: they should be respected as tax-deferred transactions only if the replacement property is also in New York
- Eliminate the “convenience of the employer” rule; cooperate with New Jersey and Connecticut to come up with a system that benefits all three jurisdictions – it’s a question of basic fairness – we have to start thinking regionally
- Recognize the “S corporation” election in NYC; alternatively, allow the shareholders of S corps to reduce their taxable income by the NYC corporate tax for purposes of determining their personal income tax
- Reduce the estate tax rate, eliminate the claw-back for gifts made within three years of death, allow portability of the New York exemption amount between spouses – in other words, give folks a reason to remain in New York
- Provide clearer guidelines for giving up New York residency – taxpayers shouldn’t have to spend as much as they do on professional fees trying to leave the state without any certainty of the outcome – it merely breeds resentment of the State and its agents; alternatively, consider a graduated one-time exit or departure tax
- Impose a “tax” on well-endowed private colleges – use it to support public colleges
- Go after tax fraud – send a message – step up cooperation with the IRS
- Take a long-term approach to legislating – businesses want certainty, they need continuity; the rules should not be changed on a political whim.
That’s all for now. I’ll let you know if I think of anything else.
I’m sure you have a lot on your plate – not to mention moving into your new digs – but please feel free to call me with any questions or comments.
Best of luck, Lou