Sleight of Hand

The late Harry Houdini was considered the greatest magician of the 20^th Century. Among other practitioners of the black arts who achieved widespread fame are David Copperfield, Doug Henning and Las Vegas staples, Penn and Teller. The chief talents of a great magician are illusion, manipulation, theatricality and bold escapes from seemingly impossible situations. Some magicians don’t know when to stop overreaching and end up pushing the envelope a bit too far as was the unfortunate case with Mr. Houdini.

In New York we have a Governor who believes himself to be possessed of magical powers, and to a certain degree, he probably does. Andrew Cuomo manages to successfully cast spells over ultra-liberal Democrats like Assembly Speaker Sheldon Silver while at the same time completely hypnotizing Republicans like our State Senator and Senate Majority Leader Dean Skelos.

Mr. Cuomo’s latest act of enchantment has been the closed-door, backroom deal to put $2 billion of new taxes on New York’s wealthy while simultaneously throwing a few hundred bucks at New Yorkers earning under $200K.

On December 31^st, the 2009 “Millionaires Tax,” a surcharge imposed on top of already high state income taxes, was due to expire. This surcharge primarily effected those earning over $200,000 a year, shooting state tax rates as high as 8.97 percent for the very rich and even at 7.85 percent for the moderately well-off (those over $300K). While campaigning for office, Mr. Cuomo pledged no new taxes (as did Mr. Skelos and the Senate Republicans) so instead of renewing the “Millionaires Tax,” Mr. Cuomo hit on a plan to completely revamp state income tax rates entirely, technically allowing the 2009 surcharge to expire on December 31^st while “presto!,” creating a whole new set of tax rates for January 1^st. These rates are in fact lower than the pre-2009 rates for most wage earners. Tax rates would have uniformly been 6.85 percent for everyone without the new tax deal. Now, some New Yorkers (those earning under $150K) will see their rates drop to 6.45 percent, with the rates rising to 6.85 percent for those couples earning up to $2 million and individuals up to $1 million threshold.

The bad news for couples making more than $2 mil (and individuals earning north of $1 million) is that their tax rate will now be 8.82 percent – magically marginally lower than the 8.97 percent they’re paying now but significantly higher than the 6.85 percent rate had December 31^st come and gone and no new tax code been put forth and no renewal of the “Millionaires Tax” gone into effect. The Alchemy of this arrangement is that a tax rate hike of 22.34 percent is being passed off as some kind of a tax cut on the expiring “Millionaires Tax” rate, which was meant to be temporary (for just two years) and – “shazaam!,” making the much higher rate permanent.

While cutting anyone’s taxes is a good thing and we do applaud the partial reduction of the much-hated MTA Payroll Tax (whose revenues will be replaced to the MTA out of the state’s general fund in another act of fiscal wizardry), what’s really happening here is that Mr. Cuomo is actually permanently and institutionally raising taxes by $2 billion and doing so by singling out what in effect is a minority group – the 30,000 New Yorkers who as couples earn more than $2 million or as singles earn more than $1 million a year. This dovetails nicely with the Democratic Party’s (and the President’s) agenda of fomenting class warfare, vilifying the well-to-do, scapegoating them and marking them for special treatment.

What is Mr. Cuomo going to do with this extra $2 billion? Why, spend it, of course, on a whole host of feel-good pork barrel programs like $50 million to help inner city youths to get jobs, $1 billion in infrastructure projects, millions and millions for health care (which makes the powerful health care workers unions happy) and education (which makes the powerful teachers unions happy) instead of cutting spending. So, instead of using the $2 billion in new taxes to plug the enormous deficits, Mr. Cuomo is spending it and spreading it around to buy votes from Democratic and Republican legislators.

In the last legislative session, the Senate Republicans were so spellbound that they practically fell all over themselves to prove how reasonable and bi-partisan they can be – allowing Mr. Cuomo to conjure no end of legislation virtually unopposed, giving Cuomo the Younger virtually everything he wanted. Now, the state Republicans are doing more horse trading and “go-along, get-along” politics instead of standing up (like the Republicans in Congress) for core conservative and responsible fiscal policies. Unless Republicans in New York substantively and forcefully differentiate themselves from business as usual, they’ll not have a realistic chance at attaining majority status and control of the state government. They need to offer a clear alternative to tax and spend liberalism. New York Republicans ought to be fighting for a five percent flat tax for everyone, regardless of income level, as a first step towards real tax reform.

On October 17^th of this year Mr. Cuomo said “You are kidding yourself if you think you can be one of the highest-taxed states in the nation, have a reputation for being anti-business – and have a rosy economic future.” Giving most taxpayers a few hundred bucks back a year (a $300 reduction is only $5.77 a week more in someone’s paycheck) is no panacea to make New York a more attractive place economically. Likewise, institutionalizing a tax rate of nearly nine percent for the wealthy on top of capital gains taxes, inheritance taxes, real estate taxes, corporate taxes, sales taxes and more will only drive more and more movers and shakers – the people who create businesses and jobs – away to Sunbelt states like Florida, Texas and Arizona. The premise of raising $2 billion from the very wealthy is fundamentally flawed as these people flee both the oppressive New York tax regime and/or find clever ways around it, so that Mr. Cuomo’s supposed additional $2 billion in taxes may be a sleight of hand as a lot of this money may never materialize and we’ll only be left with the $2 billion in pork barrel spending and an ever deeper budgetary black hole.