The federal government’s budget deficit is hitting all-time highs and New York’s 2020-2021 state and local government budget deficits are mushrooming.
And if Joe Biden wins in November, his new spending proposals will exceed $5.4 trillion over ten years.
Where will all the money come from to plug budget gaps and to fund new spending? Tax hikes.
Biden has already proposed raising the top income tax bracket on people earning over four hundred thousand annually to 39.6 percent. The capital gains rate will jump from 23.8 percent to 39.6 percent and corporate taxes will go from 21 percent to 28 percent.
However, if the Democrats win control of the White House and both branches of the Congress, don’t expect the radicals to be satisfied with Biden’s plan. My guess is they will insist that rates for income taxes and capital gains hit at least 45%. As for the corporate tax rate, they will probably push it to 35%, the rate during the Obama years.
In New York, Gov. Cuomo has been lobbying for $59 billion from Washington to close the fiscal gaps for the state, the MTA, and local municipalities.
But even if he gets that money from a Biden administration, it’s only a one-shot revenue. It does not fix the structural deficit caused by Cuomo’s shutdown of the New York economy.
Tens of thousands of small businesses and restaurants that will never reopen and the exodus of the state’s top earners will have long-term effects on tax revenue streams.
While Governor Cuomo understands that increasing taxes will not be enough to cover the projected deficits, his message is failing to register with the Democratic-controlled state Legislature.
Those Democrats are calling for the rate on millionaires, which is presently 8.82%, to be increased to 9.6 percent for those making over $5 million annually, and for those earning over $100 million, 11.85 percent.
The most ridiculous proposal is a tax on unrealized capital gains of equity holdings of billionaires.
If enacted, people would have to pay a tax on a stock that has appreciated in value even though the owner has not sold the investment and taken again.
Here’s how that would work: An investor buys a stock on January 1 for $5 a share, that at year-end is valued at $8 a share. The owner would have to pay a tax on the $3 appreciation.
But, say in March of the next year the investment goes south and the investor sells it for $2 a share. The owner not only takes a 60 percent loss on the investment but is stuck paying an unrealized capital gain tax on April 15 on the losing stock that the investor no longer owns.
Sound crazy? It is.
A tax on unrealized gains, by its very nature, is ludicrous.
As for local governments, an important source of income—sales tax collections—continues to decline. In August, it was off 7.8 percent statewide compared to a year ago, and in July it was down 8.2 percent. In Nassau, sales tax revenues, this year, have been down 10.5 percent.
To fill the 2020 deficit hole, Nassau might be able to issue debt through the Nassau Interim Finance Authority. But that, too, is only a one-shot.
Other municipalities may go to Albany and beg for the authority to issue deficit debt.
That remedy, however, only kicks the fiscal can down the road. It sticks future generations—the children and grandchildren of today’s taxpayers—with the bill for this year’s spending.
Unless elected officials at every level of government agree to do more with less, and address the skyrocketing costs of entitlement and pension programs, every form of taxation will have to be increased.
And considering that over 400 thousand have fled New York this year, raising taxes will only exacerbate the situation.
E.J. McMahon, a senior fellow at the Empire Center for Public Policy agrees. “State lawmakers,” he observed, “now clamoring to jack up state and city tax rates on millionaires insist the targeted taxpayers won’t mind—and won’t respond by simply moving. But the new IRS data add to the body of circumstantial evidence pointing to an increased outflow of high earners from New York even before the pandemic.”
With federal, state and local taxes poised to go up, it should come as no surprise if the most robust corporate sector in New York is the moving van industry.