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PATAKI SEEKS $352 MILLION IN TAX CUTS TO BUSINESSES

Gov. Pataki proposed Saturday $352 million in tax cuts, targeted primarily to businesses and aimed at keeping and retaining jobs in New York State.

Although the tax cuts are spread out over four years, Pataki insists the cuts will go forward and will lead to the creation of thousands of new jobs. The majority of the business tax reductions Pataki included in the 1999-2000 state budget proposal he will unveil Wednesday are present levies on the banking and insurance industries, as well as taxes on utility costs, which will help big manufacturers.

The new business tax cuts come on top of $600 million in lower personal income taxes that Pataki has proposed cutting by 2002.

"In the past, tax cuts were promised when convenient, only to be abandoned, postponed or forgotten all together," Pataki said of his budget plan, which also will continue some $2 billion in tax cuts already enacted over the past four years. "Today, we are sending a message that New York will not repeat the mistakes of the past and will continue to fulfill our commitment to cut taxes for all New Yorkers."

But like his proposal last week to lower personal income taxes for primarily middle-income families, most of the business tax reductions would not take full effect for several years. That worries some fiscal watchdogs who say the state, as it did during the early 1990s, might be forced to postpone these new cuts if the economy spins downward in the coming years.

Pataki's proposals still need to be negotiated with the Legislature as part of this spring's annual state budget wrangling.

Of the $352 million in tax cuts that Pataki proposes, about $30 million to $40 million will kick in during the coming fiscal year, which begins April 1. The annual tax savings are scheduled to hit the $352 million level in 2003, and one of the cuts will be phased in over 10 years.

With Pataki's second term ending in 2002, that could leave a new governor to figure out how to pay for the big tax cuts being promised now.

Besides the mostly back-loaded tax cuts, the governor also proposes amending the state tax law "to protect innocent spouses" when their husbands or wives put down erroneous details on a joint state tax return.

Individuals not involved in doing taxes have found themselves financially liable for fraudulent information, for instance, that former husbands or wives list on a joint state tax return.

A signal to business

For companies large and small, the tax cut package means a reduction in the costs of doing business in New York, regardless of whether, in the case of banks and insurers, they pass the tax savings on to their customers. The governor's proposal sends a signal to business across the United States that New York is continuing its tax-cutting ways, business leaders say.

"This is very good news for New York businesses and very good news for New York workers," said Bob Ward, a spokesman for the Business Council of New York, the chief corporate lobbying group that represents organizations from Kodak to IBM. "This is the next major step to fully eliminating the damage done by many years of high taxes."

One Democratic lawmaker, who has been critical for what he believes is the Pataki administration's ignoring the lagging upstate economy, also praised the new tax proposals.

"By carefully honing tax breaks to job creation, overall, it sounds like he's getting it," said Assemblyman Robin Schimminger, D-Kenmore.

Schimminger said Pataki should have been cutting more corporate taxes over the years, instead of aiming so much at personal income taxes, which he said have "only a very innocuous connection to job creation."

Schimminger, in particular, said he backed Pataki's plan to increase the present $1,000 tax credit to $1,500 for every new full-time worker hired by companies in emerging growth industries.

Such a tax cut, which along with credits for investing in new machinery and other capital expenses, will help persuade bio-technology and computer companies to locate or expand their operations in New York, supporters say. The tax credits will cost New York $20 million a year in lost revenues.

"That has a direct link to job creation," Schimminger said of the technology tax credit.

Cutting utility taxes

The governor's package also will slash utility taxes by $150 million a year when fully phased in. The cuts, which target everything from imports of natural gas to a plant to an excise tax on electricity, will, in turn, simply make it less expensive to produce things in New York, whether it's car parts in Western New York or computer chips in the Hudson Valley.

"Obviously, energy costs are one of our big remaining competitive problems, so the more we can reduce them the better," Ward said.

The utility tax package also will give tax breaks to new utility companies entering the New York marketplace as energy competition comes to the state in the coming years.

"Every day, companies are making decisions in New York whether to expand here or expand out of state to where costs may be lower. Our mission is to bring New York's costs more in line with out-of-state competitors," Schimminger said in backing the lower utility taxes.

Schimminger, chairman of the Assembly's Committee on Economic Development, Job Creation, Commerce and Industry, said he recalled that during the 1994 campaign, then-Gov. Mario Cuomo talked of lowering utility taxes, while Pataki promised lower personal income taxes.

"So, that's what I mean that now he's getting it," the Democratic lawmaker said of the Republican governor.

Cutting minimum tax

The governor's package will also cut another $12 million from the state's Alternative Minimum Tax, which will be felt primarily by manufacturers and companies in the securities industry that make big capital investments, such as computer purchases.

But among the biggest victors emerging from the tax cut plan will be the banking and insurance industries. Since last year, both industries have been arguing -- as well as contributing tens of thousands of dollars to Democratic and Republican interests in Albany -- that they were unfairly left out of a reduction in the broader corporate franchise tax that is to kick in for most companies this year.

The Pataki plan will cut from 9 percent to 7.5 percent the rate on a special tax paid by all banks and insurers. It will save them $150 million a year when fully effective in 2003.

The banking industry had made the tax cut its top priority. Banking officials insisted it made their industry less competitive with others, such as securities firms.

"There should be no disparity among any corporate citizen in New York as to the rate of taxes they have to pay," said Michael Smith, president of the New York State Bankers Association, whose members employ approximately 200,000 people in the state.

Moreover, the banks and insurance companies argued, the tax disparity was just one more reason banks needed to move operations out of New York to other states with lower costs of doing business.

"Tax policy is a significant part of economic development," Smith said.

Banks and insurers, because of technology, are able to locate their operations practically anywhere. Cutting their taxes, Smith insisted, will help retain banking industry jobs in New York. Whether it will create new ones, he said, "is always a tricky question."

"New York is extremely attractive because of its infrastructure and its well-trained manpower," Smith said. "But the one thing where New York has consistently been out of place with the rest of the country is its tax policy."

Health care comes up winner

But the help won't come right away. The governor's plan calls for reducing the bank taxes beginning in 2001, while the insurance industry will have to wait until 2002 for its break.

The health-care industry also comes up as a major winner under the Pataki tax plan. Since the early 1990s, a special state assessment has been placed on monthly revenues made by hospitals, nursing homes, clinics and home care providers.

The assessment is scheduled to end in March 2000, but Pataki is proposing to end it this year, saving the industry $223 million. Since the tax was already slated to end, the administration does not include the $223 million figure as part of its overall future business tax cut proposals.

Other tax cuts Pataki proposes to be phased in over the next several years include provisions to help farmers lower their property tax bills and special levies imposed on petroleum businesses, aviation fuel companies, homeowner associations and small agricultural cooperatives.

While the business community was quick to applaud the cuts, others who watch the state's financial picture from the outside worry about the fiscal foundation upon which the tax cuts are based.

Andrew Rein, a senior policy analyst for the Citizens Budget Commission, a business-funded fiscal watchdog group, said the taxes Pataki is focusing on "are certainly good taxes to reduce for competitive reasons."

But he warned that the governor was again proposing a massive tax-cutting package -- promised to take effect years into the future -- without identifying specifically how he would finance them. If he is to cut the revenue stream, he should also say now what programs he is targeting to cut to help pay for them, he said.

Rein noted that the level of phased-in tax and spending commitments enacted the past couple years -- from the STAR property tax cut program to educational aid -- is already slated to grow from $1.2 billion in the coming year to $6.9 billion by 2002. And there is no specific plan for how those cuts are to be funded, he noted.

"That's what is already on the books. So the point is we have $6.9 billion already in the pipeline that we need to finance. That's obviously the first order of business because it is already the law," Rein said.

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