Taxes Cause Further Harm Besides Directly Draining Earnings from Individuals and Businesses
By: Kari Bittner
New York State collects the highest taxes of every state in the US. Since taxes are the funding for the government, you might think that collecting the highest taxes means New York State also provides the best services. Not only are the services far from number one compared to the rest of the US, but there are unintended consequences further restraining and harming the residents and businesses of New York.
New York has the highest state and local tax burden in the country, and our spending is out of control. And it’s not just one type of tax that’s exceptionally high, but many, including state and local income tax, state and local sales taxes, licensing fees, property taxes, mobile phone taxes, and school taxes. That doesn’t even consider the myriad fees for code violations from regulations imposed at village, city, county, town, and state governments. The national average for the state and local tax burden is 9.9%, while New York sees a state and local tax burden of 12.7%. I repeat, the highest tax burden in the country! And what do we have to show for it? We do not have the best schools, we do not have the best health care, we do not have the best anything, but for all that money, we should. And on top of that, these taxes cause hidden harm to citizens and businesses of New York.
High Tax Burdens Are Obscured With Cross-Government Deductions
Each year, taxpayers navigate thousands of pages of tax code with base taxes, deductions and credits – not just for their states, but for their villages or cities, their towns, their counties, and their country. As tax codes at every level become more complex, it’s easier to lose track of the cross-impact of deductions and credits between governments who tax you.
One example in the national news is the federal tax deduction for State and Local income Taxes (SALT). This deduction on federal taxes was meant to avoid double taxation at the federal level for taxes already taken out from state and local governments. As word spread across the US about the proposal to remove this deduction, it suddenly exposed something that very few taxpayers across the US realized. States who have raised their state and local income taxes have actually contributed less than states who have done a better job of controlling their tax rates. In fact, New York is one of those states who have many taxpayers who have been able to pay less to federal, but will be heavily impacted by removal of this deduction.
New York’s taxpayers are rightfully concerned about increases in taxes, but their frustration should be directed to the appropriate source of this problem. It’s not the federal government we should be angry with in this particular case. The pain of our enormous tax burden is now more visible, due to removing the federal tax complexity that obscured just how high our New York state and local Income taxes have grown.
Government Impacts Business Winners and Stifles Growth
Besides individuals, businesses are burdened with regulations and taxes that rank New York as 39th out of 50 states in ease of starting a new business. The more often that government provides grants, loans, tax subsidies, and other funding, the more the individuals and businesses start to look to government as a source of funding, rather than pursuing projects and options that are self-funded or funded by private sources. In fact, government funding can become almost expected as people rely more on government to provide.
When New York creates new tax breaks for one type of business or adds tax levies on another, it is influencing which businesses will survive and which will not.
In 2014, New York State gave a sales tax break to wineries on samplings. This equivalent tax break was not given to breweries, distilleries, and cideries until November 2017. “This legislation provides a tremendous boost to an emerging industry driving both tourism and economic activity,” stated Kolb in a release. First, by giving only wineries this tax break initially, New York was boosting one type of product over other similar types of products. And more importantly, if removing sales tax gives industries a boost, wouldn’t removing sales taxes on more products and services give many more businesses a boost and help New York’s economy and jobs outlook?
The County of Monroe gives $1.7 million of its Hotel Occupancy Tax to the City of Rochester for the Blue Cross Arena and the convention center. The Rochester Rhinos had been self-funded until this year, when they were facing a stiff decline in ticket sales and sponsorships. They asked the City of Rochester for a portion of the $1.7 million Hotel Occupancy Tax. The City of Rochester declined and the Rochester Rhinos ultimately suspended the 2018 season. While we strongly prefer businesses be self-funding, as long as some facilities receive partial funding, others will not be able to compete to the same degree. Who decides which entertainment options should receive taxpayer money and which should not? If more people kept their tax money, they could decide for themselves which entertainment facilities they wanted to attend, with their ticket purchases and business sponsorships.
This impacts individuals, too. The State University of New York (SUNY) and (CUNY) system owns nearly $10 Billion of property in New York State, none of which is taxable. This means that the communities where those schools reside have large portions of land which are not taxable, containing large school communities that use fire, police, and code enforcement services provided by those local communities. All of the other property owners of those communities (typically individuals and small businesses) end up paying higher property taxes to cover the costs of those services to the state. Alfred, NY, home of Alfred State College, has the highest property taxes in Western NY. At nearly $17 per $1,000 of assessed value, the 2015 tax rate was the highest in the western portion of the state, according to the Empire Center for Public Policy. That works out to about $1,700 for the owner of a $100,000 home. Worst of all, these high taxes aren’t helping provide world class college educations. Two of New York’s state colleges are on the list of the 28 public universities with the worst graduation rates in 2016: #27 CUNY New York City College of Technology at 15% graduation rate, and #15 CUNY Medgar Evers College at 12% graduation rate. We give NY state-run colleges a property tax-free competitive advantage compared to private colleges, and effectively require the rest of the community to compensate for that tax break. In turn, that competitive advantage delivers cheaper but not better education to students. Streamlining the tax code would make it much easier for all taxpayers and policy-makers to evaluate the impacts – both obvious and unintended – of each type of tax.
“Free Money” Is Not Always Spent Wisely
Receiving government funding (AKA “taxpayer” funding) may feel free, but it’s not. Besides coming from the earnings of tax-paying residents and businesses, the feeling of receiving “free” money can lead to spending on things that might be delivered more efficiently. Some people in Geneva, NY felt that the city needed more parking. So Geneva spent money from taxpayers on a parking study. “The $40,000 study started about a year ago and was paid with $36,000 in state funds and $4,000 of city money”, said Sage Gerling, the city’s director of neighborhood initiatives. The conclusion of $40,000 of taxpayer money spent over a year studying parking in Geneva is that…there is no parking problem in Geneva. Nevertheless, some possible resolutions to the perception of parking issues include: “simplified regulations; way-finding improvements; residential and employee parking permits; new, innovative parking technologies; identifying new parking areas where there is a need; and parking provisions and standards that encourage downtown development.” An interesting point in this response is that the first possible solution mentions that simplified regulations could help, and several of the additional ideas would require more regulations. Did we need to spend $40,000 of taxpayer money to conclude there was no issue, after all? If we could reduce government-created regulations in the first place, we can reduce confusion and restrictions in the first place, and therefore reduce the need to use taxpayer money for frivolous studies.
Uncertainty of Future Tax Hikes Delays Private Investments
As we continue to let the role of government grow – in the services they provide and in the ways they dictate what residents and businesses can do through regulations, they need more people to administer the programs, which means spending increases….which means they need to find more income (taxes) to pay for that spending growth. In New York, 60% of property taxes are uses for schools and the rest for town and village/city services, police/fire, and more. One key variable in calculating annual property taxes is the assessment of the value of a property. This can be used as a way to grow taxes even while holding the property tax percentage firm. If you own property in New York, there’s a good chance you’ve experienced a property tax assessment increase. Property assessment is a frequent point of dispute for both businesses and individuals and can slow down or stop projects.
For example, in Canandaigua, NY, “Pinnacle North” private funding requires confirmation that the property taxes would be increased by a maximum fixed percentage over upcoming years. Phase 2 of the project cannot begin until the Canandaigua City Council, the County of Ontario, and the Canandaigua City School Board all approve this fixed maximum tax increase. On December 9, Canandaigua City voted 5-4 to accept the proposal. While a number of speakers were for the project, many speakers who own businesses were opposed, since they don’t get similar assurances that limit their tax increases over time.
In South Bristol, NY, there’s a wealthy resident who is asking for a particular service from the town for his $132,000 annual property tax on his 2900 sq ft property. $90,000 of that is school tax. Billionaire, Tom Golisano, founder of Paychex and a well-known contributor to the Greater Rochester area has asked the South Bristol town to rid his property of hundreds of nuisance geese to make his property more usable. He’s withholding the $90,000 school property tax until the town provides a service he is requesting given the amount of tax he pays. This tax is used in large part for the local school district. What kind of services should Tom Golisano expect for his total property tax assessment of $130,000?
From 2011-2016, school taxes have risen 27% and yet our public schools are failing our students. Clearly, throwing more money at education hasn’t improved the service, but those rapidly-rising taxes are creating a heavy burden on property owners in NY.
Overtaxed Residents Leave New York
Incidentally, it’s not only South Bristol, NY who has assessed one of Tom Golisano’s properties at a very high rate. The Towns of Mendon and Victor NY have also assessed very high taxes that Golisano fought to lower. In fact, Golisano points out the excessive property taxes in Western NY and overall high taxes are ultimately why Golisano chose lo leave NY to make Florida his primary home. Raising taxes on taxpayers encourages them to leave New York for states who are more responsible with spending and tax their residents at much lower rates.
When taxpayers who contribute large sums of money decide to leave New York, it negatively impacts our economy. Taxpayers have a choice – they can move to states with better taxes. And many do. As of the 2016 Census, New York is one of 8 states that saw a net population loss, despite high immigration rates.
Furthermore, numerous Upstate NY counties are shrinking more frequently than downstate counties in NY. According to the 2016 Census, since 2010, only 16 of 62 counties in New York have grown in population. And among the top 10 counties in growth, only two are from Upstate New York.
New York’s highest taxes in the US are not resulting in the best services compared to lower taxed states. In fact, they are encouraging government bad behavior that spirals into residents and businesses leaving.
High taxes cause government to use those taxes as a way to try to gain favor, but to alter normal competition giving certain industries and specific businesses deductions, waivers, and grants, leaving other businesses at a tax disadvantage. These deductions, waivers, and credits continue to make the tax code more complex, making the business landscape more like a landmine field. The complexity caused by government also creates a higher incidence of taxpayer money spent on frivolous projects, in a vicious cycle. The most effective type of investment – private investment – is delayed due to unpredictable future costs of tax hikes. When New Yorkers see lower taxes and simpler regulations in other states, it’s no wonder they consider leaving New York. Chances are, you know someone talking about leaving due to the high taxes in New York. Maybe you’re thinking about it. Before you leave, make this change in 2018 and be part of the reason that New York becomes #1 for all of the RIGHT reasons. Get involved in Larry Sharpe’s campaign. Follow Larry Sharpe on Facebook or Twitter. Get to know Larry Sharpe. Volunteer. Donate. Be part of something exciting and believe in New York again.