ALBANY – In a likely preview of what Gov. Andrew Cuomo will propose in his 2014 budget, an advisory panel this morning recommended that the governor authorize a property tax “circuit breaker" that will cut the overall taxes of many New Yorkers, trim business and utility taxes and raise the threshold for when the state’s much-maligned estate tax kicks in.
In all, the group’s recommendations total $2 billion in tax relief, including a freeze for homeowners living in localities that agree to freeze their property tax levy for the next two years and not just stay within the state’s current 2 percent tax cap program.
“It will reduce the pressure on the homeowners for two years" Cuomo said of the commission’s plan.
The proposals, in the second year, call for the state to help fund a property tax freeze in those communities that agree to consolidate and merge operations to cut costs.
The panel, headed by former Gov. George Pataki and former Comptroller H. Carl McCall, is widely seen as offering Cuomo what he wanted to hear as he puts the finishing touches on his 2014 budget that will be unveiled next month.
While Cuomo has said he believes the state’s finances have improved to make a tax cut package affordable in a year when he is seeking his first re-election, it is uncertain if any existing programs will have to be cut to pay for the tax program. That will be made clearer when Cuomo proposes his next budget in January.
“I think we’ve advanced a balanced program," Pataki said.
The commission’s plan calls for:
• Enacting an income tax credit for homeowners, called a circuit breaker because it lowers the amount several million people owe on state income taxes if their property tax bill exceeds a certain level of their income. While other components of the tax package were spelled out, the circuit breaker program was left vague.
• Raising the threshold before a state tax kicks in on estates from the present $1 million to $5.2 million to be consistent with the federal level. At the $1 million level, only about 3 percent of estates are affected each year in New York, budget watchdogs say. The tax rate on estates would also be lowered from 16 percent to 10 percent;
• Phasing out a tax on utilities, which gets passed along to consumers, that is now due to be fully ended in 2018 and would end in 2014 for industrial customers.
The package also calls for cutting the income tax on corporations from 7.1 percent to 6.5 percent and to 2.5 percent for upstate companies; the upstate component will cost the state $24 million.
The corporate tax plan “purges" state tax policies that hurt job creation, according to James Wetzler, a former state tax commissioner.
Cuomo said he asked the panel to focus first on property taxes.
“It is a crushing tax," he said of property taxes in New York.
He also wanted the panel to propose tax cuts to help the economy and to retain and attract businesses.
“There’s not a whole lot that would get me back in state government but the opportunity to cut taxes is one of them," Pataki said.
He said the proposals to cut corporate income tax and the estate tax will help convince industry and retirees to stay in New York instead of moving to lower tax states.
The recommendations were released at an event on Long Island and featured Pataki and McCall, who he defeated in the 2002 gubernatorial election.
Pataki is a lawyer in private practice in Manhattan and McCall is chair of the State University of New York board of trustees. The panel’s members included business interests, a former budget director under Gov. Mario Cuomo, and Erie Community College President Jack Quinn.
The circuit breaker idea has been floated for weeks. Used in some other states, a circuit breaker program does not do anything to actually lower the $50 billion that is collected in property taxes each year in New York, but shifts some of the costs from individual homeowners to the state’s general fund, which is paid for by income, sales and other tax collections.
E.J. McMahon, president of the Empire Center for Public Policy, a conservative think tank, wondered how the new property tax programs will work with the $3.5 billion STAR property tax program already on the books.
“So we’re leaving intact the nation’s largest, state-financed subsidy of property taxes and creating a new one?" he asked.
McMahon said the commission’s report is no trial balloon because it was clear in advance that Cuomo’s fingerprints were going to be on the recommendations. He also questioned a proposal to shift a portion of property taxes owed to localities onto the state’s coffers without making any structural changes to help lower the actual property tax burden across New York.
“It’s taking every spare dollar they can find and sending it to people whose votes are important and it’s basically not doing anything to help the state’s economy," McMahon said.
Left-leaning fiscal watchdogs say Cuomo should be halting the state’s plan to give $350 rebate checks – coming just weeks before election day next fall – to households with incomes between $40,000 and $300,000. The program is expected to cost $1.2 billion over three years.
“If you make $28,000, you get nothing, and if you make $280,000, you get $350," said Ron Deutsch, executive director of New Yorkers for Fiscal Fairness.
As for the circuit breaker property tax proposal, Deutsch said, “The devil is in the details."
The $2 billion proposal includes $1 billion in state-funded property tax relief, $381 million in estate tax cuts, $346 million in corporate income breaks, $200 million from hastening the demise of the utility surcharge, $136 million manufacturers real property tax relief and $24 million for upstate tax breaks.
Whatever Cuomo ends up embracing in the way of tax cuts will still need approval from the Legislature, which will have its own priorities as they, and Cuomo, face re-election campaigns next fall.