New York Remains a Costly Tax Mess, and It's Getting Worse

If you caught assorted television commercials being run by New York State government in recent years, you might think that the Empire State finally has its act together. Heck, one or two of those commercials even touted lower taxes.

Don’t be fooled. Like so much on television, none of this has anything to do with reality.

In fact, New York remains a costly tax mess. And matters actually look like they’re getting worse.

First, understand that the tax burden in New York, as illustrated by a host of comparative studies, still ranks among the weightiest across the 50 states. For example, according to the Tax Foundation’s “2017 State Business Tax Climate Index,” New York ranked 49th, or second worst, in the nation. Only neighboring New Jersey was worse. And according to the Small Business & Entrepreneurship Council’s “Small Business Tax Index 2017” (which I author), New York ranked 43rd, or eighth worst. To sum up, New York imposes most major taxes on individuals and businesses, and they’re all high.

Second, state government officials patted themselves on the back for passing corporate tax reform in 2014. The state did cut the corporate tax rate from 7.1 percent to 6.5 percent in 2016. However, the state also imposes a surcharge – the Metropolitan transportation business tax surcharge or MTA business tax surcharge – on downstate businesses. That is, on the majority of businesses in the state. This surcharge had been temporary, but was made permanent under the 2014 changes, and increased from 17 percent to 25.6 percent in 2015. But there’s more. In each subsequent year, the state’s tax commissioner now gets to set the surcharge rate, not state legislators. So, the corporate tax rate can increase without any input by elected officials. The surcharge climbed to 28 percent in 2016, and 28.3 percent in 2017. So, now the total state corporate income tax rate for these downstate businesses registers 8.34 percent, which is actually higher than where the rate stood before the 2014 reform (8.307 percent). No doubt, it will be hiked once again in 2018.

So, under the New York version of tax reform, the tax rate increases. Obviously, Congress should not look to New York for corporate tax reform ideas.

Third, the state’s top personal income tax – which also applies to capital gains, keep in mind – was scheduled to drop at the end of this year from 8.82 percent to 6.85 percent on high-income earners, who tend to be entrepreneurs and investors vital for economic growth. But state lawmakers earlier this year decided to put off that decline until 2020. Of course, given New York’s dismal track record on taxes, no one should hold their breath at the end of 2019.

Fourth, New York City inflicts its own burdensome taxes on top of what the state imposes. For example, the city imposes its own, additional corporate income tax at a rate of 8.85 percent. The city also has an unincorporated business income tax of 4 percent. And the city personal income tax has a top rate of 3.876 percent. But that’s not enough for Mayor Bill de Blasio, who now wants to jack up the top city rate to 4.4 percent.

It seems that government – even though it has spent lavishly for decades – has done a lousy job with the subway and bus systems. Go figure. So, as any good, mindless advocate of big government would do, Mayor de Blasio wants to award such failure with more money.

State and local governments in New York, quite simply, are money pits, and no one in government seems to have a clue that anything is really wrong. But millions of people do. After all, New York’s top export turns out to be people to other states. From 2010 to 2016, for example, New York lost 847,000 people net to other states. That came after losing 1.7 million to other states from 2000 to 2009, and 1.9 million from 1990 to 1999. And earlier this year, the New York Post reported, “More people are leaving the New York region than any other major metropolitan area in the country. More than 1 million people moved out of the New York area to other parts of the country since 2010, a rate of 4.4 percent — the highest negative net migration rate among the nation’s large population centers, U.S. Census records show.”

The economics of this are pretty straightforward. New York’s high taxes create disincentives for living, working, starting up and operating a business, and investing in the state. Resources are sucked away from productive private-sector ventures, and handed over to be wasted on old and new spending schemes dreamed up by politicians and government bureaucrats. With no real change in sight, New York’s long, relative decline compared to much of the rest of the nation promises to continue – no matter what the state’s silly TV commercials might claim.