Cuomo Says Budget Will Defend New York Against Trump’s ‘Economic Missile’
Posted January 16, 2018 10:39 p.m. EST
Updated January 16, 2018 10:43 p.m. EST
ALBANY, N.Y. — Gov. Andrew M. Cuomo on Tuesday unveiled a $168 billion spending plan that he said held echoes of the darkest days of the recession, necessitating a raft of ideas to raise revenue and counter the effect of a new federal tax plan that he warned could devastate some taxpayers.
“Washington hit a button and launched an economic missile and it says ‘New York’ on it, and it’s headed our way,” Cuomo said. “You know what my recommendation is? Get out of the way.”
Central to that escape plan is a proposal to create a statewide payroll tax on employers that could effectively eliminate the state income tax on wages for many employees, one of several ways in which the governor hoped to circumvent the sharp reduction in deductibility of state and local taxes in the plan pushed through Congress in December, and signed by President Donald Trump.
The governor also suggested that localities establish funds for things like education and public health, which would conceivably allow residents to donate to such causes and then deduct most of those donations from their federal taxes.
Cuomo, a Democrat with purported presidential ambitions, has been warning for months about the effects of the actions of Washington, and his advocacy helped trigger an unexpected rush — some $1.9 billion — of income tax payments for this fiscal year. Still, the governor said he anticipated that the federal changes will cost New York taxpayers more than $14 billion, even as the state itself faces a $4.4 billion deficit and further cuts to federal health spending.
In an interview, Cuomo explained his logic for shifting to a payroll tax. “You want to attack the income tax structure?” he said of the federal plan. “Fine. We’ll restructure the tax code.” On Tuesday, the governor’s anger at Trump and Republicans in Washington animated what is normally a dry presentation; it also gave him a political boogeyman to blame for budget woes — which should be useful in a year where he faces re-election.
“One move, all of that progress, wiped away,” the governor said of Trump’s tax plan, his voice rising. “We have to have answers.”
And those answers seemingly could touch on everything from internet shopping to snack purchases at vending machines, whose operators would be encouraged to go cashless — making tax collection easier.
One new idea for revenue is a 2 cents-per-milligram surcharge for the active opioid ingredient in prescription drugs, a root cause of the heroin epidemic that has seized the state and nation. The governor is also proposing an “internet fairness conformity tax,” a holdover idea that would require so-called “marketplace providers” like Amazon.com to collect sales tax. (It failed to win approval last year.) He reiterated a call for the closure of the carried interest loophole, a federal tax that allows some hedge fund managers to pay a lower tax rate on revenue from investments.
State Sen. John J. Flanagan, the Republican leader of the Senate, praised elements of Cuomo’s plan, including a 3 percent increase in education funding, the largest chunk of state spending. He did not seem enthusiastic about the payroll tax idea, calling it “very challenging,” though he said he had several discussions with the governor about the issue. In a small surprise, Cuomo also said that he would ask the Department of Health to study how New York would be affected by neighboring states like New Jersey and Massachusetts legalizing or moving toward the legalization of recreational marijuana. The stance seemed to be a shift for Cuomo, 60, who was slow to embrace medical marijuana in the state, though he signed a limited legalization of such use in 2014.
Having been stung by bad news in the city’s subways during 2017’s so-called summer of hell, a phrase coined by the governor, Cuomo is proposing an “action plan” of $254 million for the Metropolitan Transportation Authority. This would be money taken from financial settlements and the accelerated transfer of funds from a tiny payroll tax paid in the 12-county MTA service area.
The proposed opioid tax would raise an estimated $127 million in the coming fiscal year, while another plan — adding a 14 percent surcharge on profits made by health insurance policies — could raise $140 million, according to administration estimates.
The state’s budget bills — slated to be approved by April 1, the start of the fiscal year — are often a vehicle for nonfiscal policy, and this year was no exception, with the actual budget bills packed with issues like same-day voter registration and bail reform. Cuomo also used the speech as a platform to propose a range of changes to sexual harassment policies in the state in light of the #MeToo moment; he called it “a national crisis,” which was given new life in Albany last week when a powerful state senator, Jeffrey D. Klein, was accused of forcibly kissing a staffer in 2015. (Klein was in the audience, and has denied the allegation.)
The addition of sexual harassment to the budget process may create an awkward optic: There are no women among the four people who are charged with negotiating the budget — Cuomo, Flanagan, Klein, and Carl E. Heastie, the speaker of the Assembly.
Klein said on Tuesday that he expected to be vindicated. “We have to strengthen our sexual harassment laws,” he said. “And I intend to push to make that happen.”
Even before the speech ended, Cuomo’s call for a payroll tax — and his heated assessment of the direness of the situation — was drawing criticism. E.J. McMahon, the founder of the Empire Center for Public Policy, a conservative economic think tank, said that the new $10,000 cap on the state and local deduction imposed by Washington “will not “devastate” the state.
“And @NYGovCuomo’s continued insistence on hyping the impact strains credulity,” McMahon said on Twitter. Details on what a payroll tax would look like remained scant on Tuesday, with the governor and the state’s top budget official promising more information on Wednesday. But they seemed to envision a two-tiered process by which businesses could opt in to a payroll tax alternative, rather than a wholesale replacement of the income tax. The government might first designate certain categories of businesses eligible for the swap, and then those businesses could choose whether or not to participate, said Robert Mujica, the director of budget.
“We’ll run two parallel systems,” he said. “If there’s a desire not to make any of these changes, then you wouldn’t participate in the system.”
Cuomo conceded that the tax plan would be “dramatic” and “very complicated,” but he pleaded with legislators on both sides of the aisle to embrace his plan for the state’s financial future.
“This is not a political issue, this is green, my friends,” Cuomo said, adding, “This is the fight of New York’s future.”