By Anthony Ogorek
Buffalo, NY – Governor Pataki has vetoed what he calls "the largest tax increase in State history and $1.3 billion in unsustainable spending increases." The Legislature then voted to override the governor's line item vetos. In this titanic struggle, who is right, the governor or the Legislature?
Over the short term, political success is measured by the ability to deliver to a constituency. Over the long term, however, success is measured by a prosperous citizenry, which for most people means a job and a stable to growing population base. New Yorkers may not appreciate how short-term political expediencies in this year's budget, have compromised their future prosperity.
The state's fiscal crisis can be traced, in large part, to the stock market bubble of the late 1990s and to a lesser extent the terrorist attacks on New York City in 1991. As the stock market boomed during the 1990s at a compound annual rate of 18 percent, the state reaped a tremendous revenue windfall from taxpayers realizing capital gains and employees exercising their stock options.
Instead of viewing this temporary windfall as an opportunity to raise New York's debt rating out of the municipal gutter, both the legislature and the governor appeased their traditional constituencies by ramping up spending. What they were in effect telling the bureaucracy was, "while we have the money, you can have all that you ask for; when the money goes away, we will hit up the taxpayers for more." What family, faced with having to take a 10 percent pay cut would actually increase their spending rather than pulling in their belt until things recovered -- only the family of New York.
In order to close the spending gap in this year's budget, the Legislature will enact a quarter percent increase in the state sales tax. On a percentage basis this amounts to a six percent increase, well above the 2.3 percent inflation rate projected for 2003-2004. The sales tax is the most regressive of taxes because it is levied on those least able to afford it, the poor. In the internet age, an increase in the sales tax hits the economically disenfranchised disproportionately as more affluent citizens avoid sales taxes by making purchases on the web.
The Legislature has also elected to add a three year income tax surcharge for New Yorkers that increases income taxes by 10 percent from 6.85 percent to 7.5 percent for married taxpayers with taxable incomes over $150,000 and singles with incomes over $100,000. While it may seem that citizens with taxable incomes in excess of $100,000 can afford to pay 10 percent more for a few years, the reality is that based on current assumptions, the surtax will probably never go away -- just like the Thruway tolls that were supposed to disappear after the highway bonds were retired.
The unfortunate result of this year's budget, according to the Business Council, is that "this would give New York the highest income tax rate and highest sales tax rate among our four major neighboring states." Unless our tax structure is competitive with that of our neighboring states and the rest of the country, we will continue to see an exodus of our most precious resource, our future, our children. This budget is not just about what New Yorker's need today, but what we need to do to keep our future taxpayers from going to greener pastures, and better job opportunities that exist in lower tax states.
Commentator Anthony Ogorek is principal of Ogorek Wealth Management in Williamsville.