99 Problems

The end of the millionaires’ tax may be just the beginning

[For the sidebar, please go to As Millionaires’ Tax Sunsets, Remembering Its Origins]

On a recent afternoon, Dean Skelos stood outside a Jewish soup kitchen in Hasidic South Brooklyn, wearing a blue velvet yarmulke that read “Majority Leader of State Senate of New York” in Hebrew.

Skelos was there to chop vegetables and feed the hungry, but his Twitter feud with liberal actor Alec Baldwin over the issue of taxing millionaires was still fresh in his mind. Baldwin had called Skelos a “tool” of the super-rich. The Senate majority leader naturally took issue.

“I’m not a tool of the millionaires,” Skelos harrumphed. “I’m a tool of the job creators in this state. And I’m the person that wants to stop that flight of jobs from the state.”

Fortunately for Skelos, Gov. Andrew Cuomo is firmly in his corner on letting the temporary surcharge on high-income earners—aka the millionaires’ tax—expire by the end of the year. Occupy Wall Street (and its little brother, Occupy Albany) has reignited the call to extend the tax, as a way to both fill the
$2 billion budget gap projected for next year and bring some parity to the tax code. And as public support for the occupation and taxing the wealthy grows, progressives and labor unions from around the state are marshaling their forces in anticipation of a bare-knuckle brawl in Albany next year.

But the louder protesters and Democrats in the Legislature cry, the more Cuomo and Skelos dig in their heels.

“Last I heard, New York State has a spending problem,” Skelos says. “We don’t have an undertaxation problem, we have an overspending problem. And unless you bring it under control and make some tough decisions, we will not be able to do the good things we hope to do in the future.”

At a recent press conference, Cuomo sounded almost Zen-like about the subject.

“Would you want more taxes if you didn’t need any taxes?” he asked. “If you didn’t need any taxes for the budget, would you still need taxes just for the sake of taxes? We need some facts.”

For Cuomo and the Senate Republicans, letting the tax expire is as much about shattering perceptions of New York as a tax-and-spend bastion as about shattering perceptions that New York governors and Senate Republicans go along with it. (To take one example: The millionaires’ tax scheduled to expire Dec. 31 doesn’t just affect millionaires; it hits individuals who make at least $200,000 and families that make at least $300,000 a year.)

Skelos wants to curb spending after years of bloated budgets approved under Majority Leader Joe Bruno. And Cuomo is loath to deviate from his cultivated image as a socially liberal, fiscally conservative, business-friendly governor, even if it means alienating his Democratic base—and being tagged as “Governor 1 Percent,” who sticks up for the rich at the expense of the other 99 percent of New Yorkers.

From the outside it looks like a stalemate. Behind the scenes, elements at both ends of the tax spectrum are quietly working on ways to profoundly change New York’s tax code. One plan circulating among state officials and business lobbyists would simplify and lower corporate taxes, giving a huge boost to the same big banks targeted by Occupy Wall Street. Progressives and Democrats, meanwhile, are talking about how to shift the state’s income-tax burden incrementally higher up the tax brackets.

Both of those ideas would have to go through Cuomo. He has rejected both. But for how long?

 

It wasn’t the biggest demonstration of the last several months, nor was it the loudest, the most confrontational or the most theatrical. But the location was distinctive: not down on Wall Street, but in midtown Manhattan, outside of Cuomo’s office.

Almost 100 protesters called for an extension of the millionaires’ tax. They shouted slogans in Spanish, railed against the rich and the powerful and attempted to deliver a letter of their demands to the governor’s staff. (They were rebuffed.)

One protester named Wayne Starks, of grassroots organization VOCAL-NY, said Cuomo’s refusal to extend the tax could literally kill him. He said having no millionaires’ tax could mean more cuts to Medicaid and Medicare; and Starks, who said he is living with HIV/AIDS, is unsure whether he could live through another round of spending reductions.

“I could die,” Starks moaned.

Unfortunately for the protesters, Cuomo was not in Manhattan to hear their message. Nor was he in Albany several weeks earlier when a few dozen people  gathered outside his office on the second floor of the Capitol with similar demands. They tried to catch him outside a Huffington Post awards ceremony in October, but Cuomo slipped away undisturbed.

The governor has a knack for avoiding awkward confrontations with the Occupy Wall Street movement, just as he has a knack for plugging his ears to their demands. At a recent press conference, Cuomo sounded amused but exhausted from having to continuously shoot down the suggestion the tax be extended.

“I’m not going to start playing that game,” he said, when asked if a worsening economy could bend his will. “If, if, if, if. Let’s get the facts. My position is my position. The speaker’s position is his position. I understand all the positions and the opinions. We’ve been discussing this for years. Feels like years and years. But there is a lot of hyperbole in the air for an amazing scarcity of facts. I get the fear and frustration that’s out there. I really do.”

The facts, as Cuomo sees them, were sketched out in a recent video released by his office to promote the property tax cap, which has declined in popularity as local governments begin to come to terms with the spending cuts they will have to make under the cap. Fifteen of the highest-taxed counties in the nation are in New York, Cuomo says. School supervisors and other bureaucrats are earning salaries out of whack with the services they provide. And Cuomo believes voters, not politicians, should determine how much their local governments spend.

It was an uncomplicated message, at least until Occupy Wall Street lit a fire under a millionaires’ tax movement that seemed stymied for months. When a splinter group set up camp in Academy Park in Albany, Cuomo’s aides attempted to persuade Mayor Jerry Jennings to evict them, to no avail.

And with the state’s $2 billion budget gap next year expected to widen amid reports of a shortfall in tax collections, the clamor surrounding the protests and the millionaires’ tax is sure to grow louder.

“There is no reason in this economic climate, when the state faces a deficit, rather than make further cuts, that we should be giving a tax break to people making more than $1 million, that can close any potential deficit in our state budget next year,” said Assembly Speaker Sheldon Silver.

 

Meanwhile, the push to cut corporate taxes has been underway since before the economy collapsed. Eric Dinallo, superintendent of insurance under Gov. Eliot Spitzer, wanted to reform and consolidate the corporate tax code to help New York retain its position as financial capital of the world.

A private-sector working group based out of the state Tax Department was created in January 2008 to make recommendations on simplifying the tax code, cutting tax rates and closing loopholes, The Capitol has learned. And even after Spitzer crashed and the burned, the group’s proposal went nowhere.

But it also never really went away.

“Originally the proposal was that through this process everybody would pay less—banks, corporations, etc.—by some amount,” said one source with knowledge of the proposal. “In order for everyone to suck it up and go with the program, they were originally offering that they were going to reduce the rate across the board for everybody, so that even if you’re relatively worse off than your neighbor, everyone would be paying a little less.”

Another source with direct knowledge of the proposal was more blunt: “It would have been a monumental bombshell.”

But not the kind that Cuomo needs. At a time when public support for Wall Street has fallen off a cliff and protesters across the country are clamoring for financial equality and accountability, the Cuomo administration wants nothing to do with it.

“In our opinion, the current draft proposal does not achieve the reforms needed and it is not supported by this governor or his administration,” Cuomo spokesman Josh Vlasto said in a statement. “Obviously it would be irresponsible for a new administration to terminate all ongoing private sector advisory efforts upon taking office, but it would be equally irresponsible to hold the new administration accountable for them.”

Disavowing the corporate tax-reform proposal—just like standing firm against the millionaires’ tax—underscores how seriously the Cuomo administration takes the larger conversation unfolding about taxes in New York. His aides insist there is no linkage between talks on corporate taxes, income tax fairness and the millionaires’ tax. But those links are starting to be forged in spite of him.

Among Democrats in the Legislature, the conversation is also changing. They are beginning to talk about reforming the income tax code, expanding the number of personal income tax brackets and “smoothing out” some of the formulas that generate tax bills.

“If you have more brackets and more smoothing and more progressivity…you can actually collect more from your [personal income tax] while shifting some of the burden to higher earners, and potentially decrease the burden on low-wage workers,” said Sen. Liz Krueger.

But to conservatives, “progressive tax reform” is doublespeak for tax hikes.

“In terms of the actual distribution of the tax burden, it actually is pretty progressive,” said E.J. McMahon, senior fellow of the Empire Center for New York State Policy. “There are some people, including certain types of Assembly Democrats, for whom the phrase ‘more progressive’ means having a higher rate.”

Krueger suggests steering the conversation away from the millionaires’ tax and its negative implications toward a more open discussion about fair taxation in New York. She wants Cuomo to convene a “major tax summit” to discuss all the taxation issues currently facing the state.

Cuomo insiders say the governor is open to a conversation about what happens after the tax expires on New Year’s Day, including a discussion about reforming the tax code. But during an election year, hopes for a reasoned, deliberative debate over taxes are slim at best.

The lines have been drawn. Assembly Democrats want the tax; Cuomo and Skelos don’t. And after it expires, what Democrats can give Republicans and Cuomo in exchange for some sort of tax reform turns attention toward those issues that will dominate the legislative agenda next year: hydrofracking, casino gambling and redistricting, among others.

“We’re transactional,” said Assemblyman Jeff Aubry, a long-serving Queens Democrat. “What will be the moment, the issue of the day—who’s to say?”

 

Whether Cuomo likes it or not, the millionaires’ tax, hydrofracking and redistricting are all being discussed in Albany backrooms, as parts of what insiders say could be a “global resolution” tying them all together in a grand bargain.

From the left, millionaires’ tax advocates saw cracks in the Senate Republican façade from Deputy Majority Leader Tom Libous. He told an interviewer he could be open to new revenue sources if it helped his and other communities recover from upstate flooding. He later walked back those comments and reaffirmed his opposition to the millionaires’ tax—but the left saw signs of daylight between him and the party line.

They also see voters’ growing support for a millionaires’ tax weighing heavily on suburban Republican senators, who could be pressured to support a true millionaires’ tax—with a baseline of $1 million in annual income—or face potential challengers and negative attack ads.

The theory is: Pressuring moderate Republicans worked for same-sex marriage, so why not for the millionaires’ tax?

“It’s as much the Senate as it is the governor, perhaps even more so,” said Dan Cantor, head of the labor-backed and left-leaning Working Families Party. “If we can get the Senate to wake up and smell the coffee, that makes it a lot easier to persuade the governor.”

Labor unions also plan to keep up the pressure on taxing high-income earners. But their ability to influence the governor is limited, given the tough stance Cuomo took in contract negotiations with both the Civil Service Employees Association and the Public Employees Federation. Those unions risked layoffs to make a statement on extending the millionaires’ tax, only to ultimately accept the Cuomo administration’s demands.

Nonetheless, PEF President Ken Brynien suggested other unions that still have to negotiate contracts with the state, like the United University Professions and the New York State Correctional Officers & Police Benevolent Association, take a hard line with the governor.

“The governor’s using his own leverage by saying, ‘We’ll make the savings by contract or we’ll make the savings by laying people off,’ ” Brynien said. “That’s pretty powerful leverage. But I think part of the message back, for whoever he’s negotiating with has to say, ‘We’ll make some sacrifices, but you need to sacrifice too.’ ”

Like Cantor, he hopes to peel off a couple of Senate Republicans by using local funding concerns, including the need to rebuild following the damage wrought by Hurricane Irene, as a rallying cry for the millionaires’ tax.

“I’ll use Senator Libous as an example,” Brynien said. “When the governor says, ‘You know, we’re going to have close the Binghamton Psychiatric Center, because we can’t afford to keep it open anymore’… When these issues start hitting home, these legislators are going to have to start making decisions. What’s worse? Losing these services in my community? Or reinstituting that millionaires’ tax?”

But Brynien said getting it past Cuomo would be even harder.

“It’s going to be tough,” he said. “He’s dug in on the issue.”

ahawkins@nycapitolnews.com