Shortly after Gov. Andrew Cuomo closed down New York’s economy in March 2020, he whined that the state’s budget deficits in 2020 and 2021 could be $12 billion to $14 billion due to declining tax revenues.
Well, what did he expect? After all, hundreds of thousands of people were laid off, tens of thousands of small businesses closed (many forever) and tourism came to a halt.
Sales taxes from restaurants alone were down over $2 billion in 2020.
In addition, people fleeing New York City caused rental apartment vacancies to increase to 5 percent in January 2021 vs. 2 percent a year earlier.
As for commercial real estate, with huge numbers of white-collar workers operating remotely from home, scores of companies downsized their office space as leases expired. In Manhattan, new leases dropped 70 percent in 2020 and the vacancy rate hit 13 percent —the highest level in 24 years.
As a result, State Comptroller Tom DiNapoli reported a 10 percent drop in billable assessed commercial property taxes. This phenomenon, DiNapoli noted, is the biggest decline in the recorded history of New York commercial real estate.
Even Mayor Bill de Blasio had to step out of his ideological bubble and recognize this growing problem. In his budget proposal for the fiscal year that begins on July 1, 2021, he has projected a $2.5 billion drop in commercial real estate tax collections. And that number is probably too low.
It should be noted, that Gov. Cuomo exaggerated when he claimed that deficits could hit $12 billion to $14 billion. Because Cuomo did not factor in $6 billion in reserves that could be tapped in extraordinary times, the deficits would be in the range of $6 billion to $7 billion.
No doubt Cuomo threw out inflated numbers to pressure the Feds for plenty of stimulus aid. (Getting north of $12 billion in one-shot dollars would balance the budget for the fiscal year that ended March 31 and the budget for the next fiscal year, which is coincidentally an election year.
In March, Cuomo lucked out. Senate Majority Leader Chuck Schumer was able to procure $12.6 billion in unrestricted funding, permitting Cuomo to announce there was no need for tax increases or spending cuts.
But that good news fell on deaf ears in Albany. Spending $177 billion in the 2020-2021 fiscal year — which is twice the expense budget of Florida, with 22.2 million people vs. our 19.3 million — is too little for the Legislature’s Democratic majority.
Leftists are calling for a 22 percent spending increase to be funded by higher taxes on the so-called rich that include: raising the millionaires tax to 9.85 percent for incomes over $1 million, growing to 11.85 percent for people earning more than $25 million annually; increasing the estate tax from 16.5 percent to 20 percent; a 1 percent capital gains tax on people earning more than $1 million annually; a tax on New York City second homes.
Nicole Gelinas of the Manhattan Institute has pointed out that these proposed taxes on “a single filer with $1 million in income would see a 23 percent state tax hike…. A filer making $10 million would see a 48 percent hike….”
Combined state and New York City income taxes for a millionaire would hit an astounding 15.75 percent. Adding the expected increase in federal income tax rates to 40 percent means a person’s total payout would be 55.75 percent.
Sadly, a letter to Albany officials signed by 250 business leaders that employ 1.5 million people warning that “ultimately these new taxes may trigger a major loss of economic activity and revenues as companies are pressured to relocate operations to where the talent wants to live and work” has been ignored.
And since the top 1 percent of taxpayers — about 60,000 filers — pay 43 percent of the state’s personal income tax, if only 5,000 move out, New York’s tax base could be wrecked.
As I write this column on Saturday, April 3, New York missed the March 31 deadline to pass a budget. Hence, the fiscal picture is very fluid. But Cuomo, weakened by the nursing home scandal, may surrender to the radicals to maintain his lease on the governor’s mansion.
If the “soak-the-rich” ideology prevails, New York will not be able to sustain its spending spree and will hit a state of fiscal despair once the one-shot federal stimulus money runs dry.