Tax Tips Spitzer Could Use

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

The advice that Governor Spitzer is getting is that he should start hitting singles. After a year of humiliating strikeouts and bench-clearing brawls, the thinking is that the governor needs to rack up small accomplishments in order to rebuild confidence in his leadership.

The problem is the game’s not close. New York, as a whole, has slipped too far behind other states. If it’s going to stage a rally, Mr. Spitzer will have to produce more than a few slaps to left field, while keeping in mind the difference between a wild swing for the fences — i.e., illegal immigrant licenses — and a good, solid stroke.

An early sign of disappointment with the Spitzer administration was the lack of big ideas in his first budget. The governor tried to pretend otherwise, touting his “Contract for Excellence,” which accompanied a record surge in education spending. Neither a binding contract nor conditioned on excellence, the program is a costly layer of bureaucracy masquerading as accountability. The early indication is that Mr. Spitzer will be even more cautious and unimaginative in his second budget, which he will submit to lawmakers in January. If the governor changes his mind and starts to wonder if a platform of humility will be enough to run on in 2010, here are a few ideas he could try out:

For starters, how about a property tax cap? As noted by the Citizens Budget Commission, more than a dozen states cap the annual growth of property tax collections. The Spitzer administration has stuck with the Pataki model for lowering property taxes by putting more money into the School Tax Relief program, which uses state funds to pay for local property tax exemptions. As the commission noted, the program has failed to lower taxes by encouraging school districts to spend more money more wastefully.

A cap on local school property taxes wouldn’t cost the state any money but would encourage efficiency by forcing Albany and local governments to tackle the union contract and pension mandates that are responsible for New York’s high-levels of municipal spending.

The most successful version is Massachusetts’s Proposition 2 1/2, a 25-year-old statute that limits annual increases in local property tax levies to 2.5% of aggregate property values. In the first 10 years of its existence, Massachusetts went from having a tax burden that was 22% above the national average to one that was 1% below average. A cap would meet resistance from the state teachers’ union. (In New York City, the cap would have less of an impact because school budgets don’t depend on property taxes.)

The governor could counter the anger by sticking with his pledge to hike state school aid by $7 billion over his term, money that would make it easier for local school districts to swallow a cap.

Another idea, one championed by the most prominent fiscal analyst in Albany, E.J. McMahon, is to abolish the corporate franchise tax in upstate New York, establishing one of the only regions in America free of a state tax on capital formation and profit-making. Mr. McMahon would phase in the plan during three years and estimates a net revenue loss of $1 billion, which he said could be replaced by scaling back on failed upstate aid efforts, such as the Empire Zone program.

Downstate is already increasingly subsidizing upstate, Mr. McMahon points out. “The more they sink, the more rope you have to give them,” he said. His idea is to give the area help in a way that will draw more capital investment so that in the long-term, upstate will become more self-sufficient.

Along similar lines, a former top aide to Mayor Bloomberg suggested that Mr. Spitzer get rid of the 4% sales tax in upstate. It’s an idea that would certainly catch Joseph Bruno and the Senate Republicans off guard and neutralize their accusation that the governor has no plan to revive the region.

Lawmakers would complain that the plan is unfair to New York City metropolitan area residents. Mr. Spitzer, as the aide suggested, could respond by co-opting Governor Cuomo’s “family of New York” theme of compassion.

If Mr. Spitzer is to make a big splash in January, it’s more likely that he will favor programs, such a universal health care package, that appeal to various left-wing constituencies.

The governor has been more concerned about redistributing state funding than limiting how money is spent. Part of the thinking behind this approach is that Mr. Spitzer will likely have a more competitive Democratic primary in 2010 than a Republican one.

The catch is that by moving leftward, the governor only strengthens the position of the Senate Republicans, who can portray themselves as a check on Mr. Spitzer’s excesses. The governor will be in an even weaker political position if the Republicans hold on to their majority next year.

Our shell-shocked governor, most likely, is thinking small. My guess is that he prefers to bunt rather than risk another whiff at the plate. If that’s the case, it will take another governor to pick up the bat and get New York back in the game.

jgershman@nysun.com


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