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From Governing’s Supplemental information | Introduction
The Empire State’s problems are due in large part to extremely heavy dependence on the income tax, in which New York stands second only to Oregon among the 50 states. This was a good thing through 2000, as capital gains, bonuses and the enormous salaries on Wall Street buoyed the treasury in Albany. And until the economy turned, it allowed Pataki and the legislature to enact their own tax version of the Miracle on 34th Street. Over a period of seven years, the state reduced its tax receipts by a combined total of $67.3 billion.
There was a nice gift for just about everyone. Middle-class taxpayers got substantial income tax cuts, and the wealthy benefited from a reduction of the top income tax bracket. The working poor got enhanced earned-income tax credits. Meanwhile, the state was handing out a proliferation of business tax credits, so that even though New York continues to draw a relatively good portion of its revenue from corporations, the base has been steadily eroding. In fiscal 2002, Michigan was the only state that gave more in tax cuts to businesses than New York did. The state sales tax rate wasn’t slashed in the cutting spree, but that’s largely because it was low to begin with: just 4 percent, compared with 6 percent in neighboring New Jersey and Connecticut. Altogether, the state sales tax brings in less than one-fifth of state revenues, a smaller share than in almost any other state that has such a tax. The rate pretty much has to remain low to provide for room for New York’s municipalities, which are allowed to impose an add-on of up to 4.5 percent. But don’t conclude that New York is a benevolent master for its localities. They need every dollar they can get their hands on. New York funds far fewer local services than most state governments do. It has a low level of state funding for schools — and the largest disparity in the U.S. in per-pupil spending between more affluent and poorer districts. It requires its counties to pick up a significant portion of Medicaid costs, a burden that most other states bear without local help. And Albany has cut back dramatically on the revenue sharing promises it made to localities in the 1970s. As a result, rising health care costs are forcing many counties to raise their own taxes dramatically. The bottom line is that the combined state and local tax burden is very high throughout New York, and astronomical in New York City. And this leaves the state with little room to maneuver now. Property taxes are almost entirely a local matter here. There are no statewide requirements for cyclical reassessment. Some property tax relief has been provided through a program that exempts the first $30,000 of value for most homes. But the basic property tax system remains arcane and complicated, with overlapping governmental borders and fragmented assessments. “It’s an inequitable system,” one expert notes. “Equals are not treated equally.” While New Yorkers may be miserable when it comes time to pay their tax bills, their dealings with the tax department are less painful than they used to be. Until the mid-1990s, New York’s Department of Taxation and Finance enforced its laws harshly, even at the risk of seeing businesses and citizens flee to other states. Now, instead of simply seizing assets of businesses that owe money, for example, the state favors negotiated agreements that allow for installment payments and continued operation. Critics contend that a kinder and gentler New York sometimes goes too easy on corporations. But Tax Commissioner Arthur J. Roth doesn’t think there’s been an unreasonable trade-off. “You can be focused on compliance and simultaneously be taxpayer-friendly,” he says. “These are not mutually exclusive.” The tax department’s Web site is excellent, as are taxpayer-outreach efforts. The department’s call center no longer leaves taxpayers gritting their teeth to the tune of an insistent busy signal. More important, the person who answers the phone often has the authority to solve the problem on the spot. The drive to improve technology is a work in progress. An important step was taken three years ago when the department started to develop a data warehouse, which helps target audit candidates in the personal income tax arena and will soon do the same for the sales and use tax. The state will still be reliant on some inefficient legacy systems until the first components of a new integrated tax system are implemented in 2004. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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ew York’s serious revenue problems are a headache whose existence the state’s leadership has only recently (and grudgingly) come to acknowledge. Throughout last fall’s election campaign, Governor George Pataki insisted that state revenues were reliable and secure. After the election, he opened up to the possibility that significant problems loomed. And after the dawn of the new year, he began using the word “crisis” to describe the situation. “Crisis” is, in fact, the right word. New York can’t pay its bills with the money its tax system currently is bringing in. It is facing a shortfall in the 2004 fiscal year estimated at $5 billion to $10 billion, on a budget of about $90 billion.