Cuomo’s Tax Hike Friendlier to the Rich Than Advertised, Budget Experts and Legislators Say

Unveiling his executive budget this week, Governor Andrew Cuomo made headlines by proposing to raise taxes on the state’s highest earners to help meet a projected two-year $15 billion budget shortfall.

The tax increase would raise just $1.5 billion in the 2021 fiscal year, paired with $2.8 billion in proposed cuts, and would be enacted only if the federal government does not fulfill New York’s request for $15 billion in unrestricted aid, the governor said. Still, as the New York Times noted, it appeared to signal a significant shift for a governor who had previously resisted calls from the legislature to increase taxes on the wealthy.

But budget documents made available only after Cuomo and his budget director, Robert Mujica, had given their addresses on Tuesday—and thus only after the first round of media coverage of the executive budget—showed that the tax proposal is considerably narrower than the governor’s speech made it seem.

The tax increase would apply only for three years—and would be reimbursable, according to the executive budget briefing book. If high-income taxpayers paid all three years’ surcharge in advance this year, they would be paid back in 2024 and 2025.

“The proposal is an innovative way to address the State’s short-term fiscal challenges while minimizing the impact on taxpayers over the long-term and to help maintain New York’s ability to compete,” the briefing book explained.

Budget office spokesman Freeman Klopott told New York Focus that the prepaid surcharge would be reimbursed in full. Senate deputy majority leader Michael Gianaris said that he had been told that the prepaid surcharge would only be deducted from income subject to tax in future years and that only a portion would be reimbursed. Pressed again on whether the surcharge would be entirely reimbursed, Klopott did not respond.

Neither Cuomo nor Mujica mentioned the reimbursement in their livecast Tuesday presentations on the executive budget. The tax repayment plan may be the first of its kind: Budget experts including E.J. McMahon, senior fellow at the Empire Center, and Carl Davis, research director at the Institute on Taxation and Economic Policy, said they had never seen a comparable scheme.

"There's a little bit of a tax increase here, but this is more of an accounting gimmick than a tax increase,” Davis said.

Also left unmentioned in the presentations was that the new highest rate would not apply to most taxpayers in the state’s current top tax bracket, which begins at just over $1 million in income. Instead, it would affect only the tiny sliver of taxpayers earning over $100 million a year. Single and joint filers earning between $5 million and $100 million would see smaller tax increases, while taxes on filers earning under $5 million would remain unchanged.

The executive budget’s proposed personal income tax schedule. Source: Freeman Klopott, NYS Division of Budget

“When you look at the numbers, we're talking about a minuscule, temporary surcharge for the top .1% of New Yorkers. It's no surprise the Governor didn't want to shout this from the rooftops,” said Monica Klein, a spokesperson for Invest in Our New York, a large coalition of progressive advocacy groups pushing for $50 billion in new taxes.

Cuomo portrayed the tax increase, which would raise $1.5 billion in 2021 and smaller amounts in future years, as in line with the legislature’s proposal.

“If New York State raised taxes by the Legislature’s proposal,” a slide on the governor’s budget address presentation said, the state would raise $1.5 billion in new tax revenue. In an email detailing the proposed income tax schedule, Klopott also said that “This is similar to proposals discussed in the legislature.”

But according to Gianaris, the second-highest ranking Democrat in the state Senate, the legislature is pushing for a significantly larger personal income tax increase with “a much lower starting point and a much lower realization of the full rate.”

“We have a significant budget gap which we have to fill just to avoid cuts to necessary services. There are great needs that need to be filled beyond the $15 billion budget hole that we have,” Gianaris said. “The governor seems to be saying, ‘well I might have to raise taxes on the rich if we only get 6 out of the 15 billion [in requested federal aid], and if we get the 15, then I don’t have to do that.’ Well, many of us believe we should be doing that regardless. I think that’s the position of both houses of the legislature.”

“It seems like the governor’s twisting himself in knots to not offend rich people. At a time when they have been wildly successful while the rest of the world has been crumbling around them, the notion that we should avoid asking them to help fund the state’s recovery is crazy,” Gianaris added.

Asked about Gianaris’ comments, Klopott said, “He is entitled to his own opinions but stunningly wrong on the facts, which couldn’t be more clear: The Executive Budget proposes taking New York from having the second highest tax rate in the nation on the wealthy to the highest.”

In addition to the income tax hike, Cuomo’s executive budget proposes raising revenue delaying planned middle class tax cuts and legalizing and taxing mobile sports betting and adult recreational use of marijuana.

“You’re looking at close to a billion dollars in vice taxes. In general, these are regressive taxes which fall on poorer people,” said Nicole Gelinas, a senior fellow at the Manhattan Institute, a conservative think tank.

The executive budget also proposes $6.2 billion in spending reductions over the next two years, including reducing state school funding by over $1.5 billion and Medicaid spending by over $1.8 billion.