A new report is warning that New York State has the most hostile business tax climate in the nation, largely due to its higher-than-average personal income, sales and business taxes.
New York ranks last among the 50 states in terms of the burden placed on businesses by a variety of state taxes, according to a "business climate" study published by the Tax Foundation, a nonpartisan research group that was founded in the 1930s during the Depression.
The study comes on the heels of two other reports that cast a critical eye on New York's tax system and spending levels, and clash with Governor Pataki's claims that the state under his stewardship has made substantial gains in making itself more appealing to businesses and entrepreneurs. The reports, taken together, could make it more difficult for Republican gubernatorial candidates to portray their party as being more fiscally conservative than the Democratic Party.
The foundation, whose study feeds several variably weighted indexes into a single ranking, says New York ranks 30th in its business tax index, 50th in its individual income tax index, and 39th for sales taxes, the three largest categories.
Joining New York at the bottom of the list are New Jersey, Rhode Island, Ohio, and Vermont. New York also placed last in the ranking in 2003 and 2004, though the gap between its index score and the national average has diminished slightly since 2004.
The report's findings run parallel to the results of another study, published by the Milken Institute, a California based think tank, which places the New York metropolitan area behind 160 other metropolitan areas in the nation in a ranking of job growth, which takes into account recent employment and salary data. The top three areas are in Florida, which placed high in the Tax Foundation's business climate rankings.
"States do not enact tax changes ... in a vacuum," the Tax Foundation study states. "Every tax law will in some way change a state's competitive position relative to its immediate neighbors, its geographic region, and even globally." States finishing at the top of the list - Wyoming, South Dakota, Alaska, Florida, and Nevada - "can take advantage of the tax increases of their neighbors to lure businesses out of high tax states," the study says.
Responding to the report, a Republican candidate for governor, John Faso, a former minority leader in the Assembly who helped craft Mr. Pataki's first-term budget, directed blame not toward Mr. Pataki but to what he described as a long-standing culture in Albany.
"What is wrong is that New York for 40 years has acted as though it were immune to forces in the national and international economy," he said. "The single most important thing to do is to put state spending on a diet so we can cut taxes."
Other Republican candidates for governor have proposed spending freezes. A former New York secretary of state, Randy Daniels, said he would hold spending at its current level for three years. A former governor of Massachusetts, William Weld, is proposing a "Taxpayer Bill of Rights" that would limit state tax revenue spending to the prior year's total, with small amounts added to take into account population growth and inflation.
A spokesman for Eliot Spitzer, a Democratic candidate for governor, said the state attorney general will be unveiling a more detailed economic plan in coming weeks. In speeches, Mr. Spitzer has stressed the importance of investing more heavily in areas like transportation and education.
Released late last week, a study conducted by the Empire Center for New York State Policy, a branch of the Manhattan Institute think tank, found that Mr. Pataki's 2006-07 executive budget calls for a spending increase - excluding federally reimbursed spending - of 7.1% versus the year before, a jump to $75 billion from $70 billion in 2005-06. The total proposed budget is $110 billion.
Forty percent of the increase, the report said, is attributed to hikes in Medicaid spending, school aid, and funding for a program called STAR that gives homeowners a partial exemption from school property taxes.
A large chunk of the spending increases proposed by the governor is a result of the state picking up more of the local tax burden. The state is spending $530 million on an additional tax rebate for homeowners, which accounts for about 10% of the spending increase. The increase in state spending on Medicaid, which under Mr. Pataki's budget would rise $746 million, to about $12.5 billion, largely stems from a law passed last year by the state that caps county government Medicaid expenditures at 3.5%.
Mr. Pataki's proposed tax cuts, while having a relatively small impact in the upcoming budget year, would total more than $3 billion by two years from now. Coupled with the tax cuts, which include the elimination of a marriage penalty, the reduction of the top rate of the personal income tax, and the repeal of the estate tax, are boosts in business, sales, excises taxes, fees, and fines that total a little less than half the amount shaved away by the tax cuts. The report also projects that state-funded debt will have nearly doubled by the time Mr. Pataki leaves office at the end of the year.
"In the wake of Pataki's first-term tax cuts, private employment growth in New York exceeded the national average in 1999 and 2000," the report states. "But since recovering from 9/11, New York has once again fallen behind the national employment growth rate - and Pataki's own budget predicts this trend will continue."