Thursday, December 23, 2010

Cuomo, Taxes and Small Business

The news that NY State lost two congressional seats because of its proportional population loss, underscores the extent to which NY's high cost of living-and poor business climate-has encouraged a growing exodus to less onerous places to live and work. Dick Morris and Eileen McGaan make this point in today's NY Post: "High taxes kill states. There can be no better evidence  than the 2010 Census. The states that lost House seats -- because they're shrinking, relative to the nation -- had taxes 27 percent higher than the ones that gained seats. Of the seven states that don't have a personal income tax, four (Texas, Florida, Nevada and Washington) account for eight of the 12 seats apportioned to the fastest-growing states."

And, with apologies to Charlie Rangel, it's not just the weather: "The states that gained seats ranked an average of 39th in taxes and had an average tax burden (weighted) of $1,788 -- 27 percent lower than the losing states. People vote with their feet and flee to low-tax states. It's not the climate; it's the taxes."

In the past decade, NY State has lost a million people-with the largest losses occurring upstate where job prospects are dim. John Faso underscores this bleak picture: "Many New Yorkers have no choice but to flee our confiscatory taxes and dismal job climate. Can our policymakers turn things around?..But the greater challenge will be crafting policies that fundamentally change our long-term economic prospects. The state needs to radically alter prevailing assumptions that have governed New York state for the last half century if it is emerge from this recession with brighter prospects."

A governor Cuomo needs to send a signal to the small business community that he is going to rein in the size and scope of state government: "First, Cuomo should propose a bill declaring a statewide fiscal emergency and suspending salary increases for all state and local government employees for at least the next two years. This would save taxpayers more than $2 billion and is far preferable to mass layoffs of public workers and teachers."

Cuomo's property tax cap is an excellent signal to all New Yorkers that the era of free spending is over-but that cap needs to be accompanied by mandate reforms that free local governments from their unfunded liabilities: "Cuomo also wants a cap on property taxes -- but unless he also embraces a panoply of structural changes, any cap will fail dramatically. For example, New York needs pension reform so that all new government employees are placed into 401(k)-type plans. Also vital are sweeping changes in how public-employee contracts, including retiree health insurance and work rules, are negotiated."

The tax cap proposal also gets the tentative-back handed-endorsement of the NY Times-with the paper agreeing with Faso on the need to couple the cap with mandate reform: "The Legislature enjoys passing laws without giving locals the money to pay for them. Take special education, which at more than $24,000 per student is far more expensive in New York than in most other states. For years, lawmakers have added 257 additional requirements to federal disabilities laws, according to the Citizens Budget Commission. Those additions cost local districts extra, mostly for personnel. Mr. Cuomo needs to do a sweep of the extraneous mandates before imposing a tax cap on local communities."

But the Times also inveighs against skyrocketing public employee costs: "Personnel costs are skyrocketing. Outside New York City, the cost of pensions, health insurance and others benefits for workers has been increasing about 10 percent a year since 1998, according to the State Department of Education. The Legislature over the years has sweetened benefit packages as a way of rewarding teachers or other workers. Mr. Cuomo should push for regional collective bargaining instead of district by district. The goal should be pensions and health care systems for government workers that are more like those in the private sector."

Yikes! If you're a public sector union leader you have a big problem when you've lost the support of the NY Times-but the paper has nothing to say-as usual-about the state's business climate. Faso fills in the gap: "Second, the state must become a place where businesses choose to locate, without having to be bribed with taxpayer-funded "incentives." The nonpartisan Tax Foundation earlier this year found that New York ranked 50th in the nation -- dead last -- as the state most hostile to business. Changing that means wholesale regulatory reform -- drastically simplifying rules to encourage private-sector development...Laws favoring excess litigation also needlessly add to business costs without enhancing worker safety.

To this we would add that Cuomo should set up a small business advisory council to work with his staff and agencies on regulatory reforms that eliminate the unnecessary and burdensome regulations that thwart business growth. And as a good first step, he should immediately signal that the era of coddling the Indian cigarette tax scofflaws is over-and look to bolster local tax stamp agents with needed additional handling fees so that they can stay in business.

But the major thrust has to be in the area of government retrenchment-because that's the only way he will be able to not only hold the line on new taxes, but start to roll some of them back in order to make the state more competitive. The target rich environment starts with a huge bulls eye on public employee pensions-but retiree health care costs present an additional $205 billion problem. E. J. McMahon has been Paul Revere on this issue. As he pointed out in the NY Post: "New York state and local governments' liabilities for retiree health coverage run to the hundreds of billions of dollars -- a burden that's only now coming into full view. Governments in the state spend billions a year on health-insurance for their retired employees -- a benefit that will never be available to the vast majority working in the private sector. Unlike pensions, which are at least partly pre-funded through large investment pools, retiree health care in New York's public sector comes out of annual budgets on a "pay-as-you-go" basis."

While attacking the size and scope problem-and reining in the high cost of public employees-Cuomo needs to reform the state's entire tax structure. Faso suggests the following: "Third, the tax system requires drastic changes -- lowering personal and business rates and eliminating loopholes, preferences and exemptions. A simpler, flatter tax system could generate virtually the same revenue, with much lower compliance costs."

In order to be able to accomplish this drastic restructuring-and re-imagining-of New York's political culture, Cuomo's going to need lots of help. The "conservative" forces of the status quo, and their legislative allies, are going to have their long knives out-and they will be sharpened. The small business community-battered and bruised in this state-is ready to enlist in this battle for survival.

We're just glad we finally seem to have a chief executive who understands how Albany sclerosis and a big government mindset has crippled the ability to make a go of it here. We are ready to fight side by side with Andrew Cuomo in his effort to demonstrate that New York State is, once again, open for business.