Blair Horner: The Price Of Election Year Tax Cuts

Last week, a gubernatorial commission released its $2 billion tax cut plan for New York State.  The commission’s plan provides for a 2-year property tax freeze, a cut in the tax rate on corporations to 6.5 percent and a reduction in tax on manufacturers to 2.5 percent.

But where did the $2 billion come from?  The number seemed to evolve over time.

First some background.  In November, the state Division of the Budget estimated that New York’s budget deficit next year could be $1.7 billion and then $2.9 billion the year after.  State Comptroller DiNapoli also estimated that the state faced deficits.  The Budget Division reported that if the state kept its spending budget growth to less than 2%, the budget deficits would not occur.

But they didn’t say what the size of the surplus, if any, would be.

This year’s budget, however, is projected to end in a surplus of $1.8 billion.  So there is some excess revenues, but it’s not certain that the surplus will reoccur next year.

In new statements, the governor initially said that New York would have in “essence” a budget surplus next year if the state’s budget growth was less than 2%.  Later, he said more directly that the state was expecting a $2 billion surplus, and it was that figure that the governor’s commission used to develop its tax cut plan.

In a matter of weeks, the state went from projected deficits to a $2 billion surplus that is so certain that it justifies tax cuts.

Of course, the commission’s proposal is not the law of the land.  When lawmakers return in January, they will take up the governor’s plan and we won’t know until the March 31^st budget deadline what the size of the tax cut will be.

But next year is an election year.  Governor Cuomo and incumbent state lawmakers are going to want to run for re-election touting their credentials as tax cutters.  After all, who can be opposed to tax cuts?

There are those who were not enthralled with the governor’s plan. Many liberal critics were unhappy with the cuts to business taxes, saying that they were giveaways to the rich.

There are others who are more concerned about tax cuts that happen to occur during re-election years.  In 1994, when then-Governor Mario Cuomo was running for re-election, his budget projections masked a $5 billion deficit that had to be resolved by the newly-elected Governor George Pataki.

In 2002, it was Governor Pataki’s turn.  As he ran for re-election, his office issued rosy projections for the next year’s budget.  Then-Senate Majority Leader Joe Bruno argued publicly that the state was facing an immense deficit -- $10 billion.  The Governor and his budget staff ridiculed Senator Bruno.  But it turned out Bruno was right.

So, recent history shows that budget forecasts have been tweaked to benefit incumbents.  That’s not to say that such “tweaking” is happening this time, but it makes many uneasy.

Let’s assume that all is well with the numbers: that if the state keeps the growth in spending to less than 2% (and it has in the past), then the budget will have a surplus, maybe one as large as $2 billion.

But what does a 2% cap on spending mean?  The two biggest cost drivers in the state budget are education aid and Medicaid.  Medicaid is a $50 billion plus program that offer health insurance for low-income New Yorkers.  Under a budget agreement, the growth in Medicaid spending is capped at 3.9 percent, a number which is higher than the 2% budget goal.  Last year’s $20 billion education budget was increased by 4% as well.

If health and education spending go up more than 2%, what happens to the rest of the programs in the state budget?

They face cuts.

For example, in last year’s budget battle, the governor successfully pushed for cuts to public health programs.  As a result, already underfunded programs like funding for breast cancer screening programs for those without health insurance were cut.

It’s precisely those types of programs – programs which help the needy – that are most at risk.

When you hear about tax cuts next year, remember this – it’s likely to be paid for with cuts to programs that help those who most need the state’s assistance.

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