An Open Letter to Andrew Cuomo
December 30, 2010
Dear Governor Cuomo,
Congratulations on your election.
During our recent Gubernatorial contest, we emphasized different approaches as to how best restore the state’s fiscal health and to reduce the onerous impact of local property taxes. But as you prepare to start your administration, it is critical that the long term needs of our state take priority over the political rhetoric that dominates election campaigns.
For most New Yorkers, especially the more than one million who are unemployed or underemployed, the lack of jobs is the most critical issue. And with our state and country facing the greatest recession in seventy years, it is imperative that government policies at all levels provide a cost effective economic stimulation.
Progressive tax reform, starting with ending the rebate of billions of dollars annually from the Stock Transfer Tax, should at the top of the list for three reasons: for fiscal responsibility, for jobs and economic recovery, and for providing needed public services.
Fiscal Responsibility: As economists such as Nobel Prize winner Joseph Stiglitz have pointed out, it is fiscally irresponsible in a major recession to rule out progressive tax reforms that raise taxes on the wealthy and cut taxes for the middle and working classes. In particular, tax cuts for the wealthy such as recently enacted by Congress will do nothing to stimulate the economy because they do nothing to stimulate demand.
The share of income taken home by the richest 1 percent of Americans has almost tripled in the last three decades to 24 percent. New York has the most unequal income distribution of all 50 states. Yet the rate for the top income tax bracket in New York is less than half of what it was in the 1970s. The wealthy need to pay their fair share of taxes again.
Retaining the revenue from New York’s existing Stock Sales Tax would generate at least $13 billion in additional revenue, eliminating the projected $10 billion budget deficit for 2011. Along with other revenue reforms it would generate a surplus for job creation and public services, which will help the economy to recover.
The Stock Transfer Tax is a tiny sales tax on stock purchases, with a graduated scale topping out at 1/20th of 1 percent or $350, whichever is less, on large purchases of a stock. Compare that to the 8 percent sales tax on consumer goods. The tax has been collected since 1915. But since 1981, it has been collected and then immediately rebated.
This sales tax primarily hits on those who speculate on stocks rather than those who make long-term investments. The sales tax revenue been growing rapidly due the computerized high-frequency trading on their own accounts by big financial firms like Goldman Sachs and JP Morgan Chase – a form of insider trading that distorts the market and should be discouraged. These firms, which the taxpayers bailed out with trillions in federal loans and guarantees and are now highly profitable, pay the lion’s share of the Stock Transfer Tax.
Jobs and Economic Recovery: The economy needs public spending to raise demand in an economy that is stagnant, with excess productive capacity, intractably high unemployment, and mounting foreclosures and bankruptcies. The banks and corporations are sitting on trillions of dollars in cash. But they are not lending and investing because the consumer demand to make such investments profitable is not there. If government doesn’t step in with spending to raise demand, the economy will continue to deteriorate, lowering tax revenues, and necessitating further public spending cuts, which will further depress the economy. It is a vicious downward spiral. With consumer demand and therefore business investment depressed, only increased government spending can turn the economy around.
Public Services: In this stagnant economy, there is an increased need for public services, from safety net programs to aid the unemployed and their families to public jobs in public works and services to reduce unemployment. Whether it is the under-staffing of schools and snow removal crews due to recent budget cuts, it makes no sense to cut public jobs and services when we face high unemployment, depressed consumer demand, and increased needs for public assistance.
I highlight the Stock Transfer Tax because it is revenue the state already collects but gives right back. It is not a new tax. It just requires that the state retain revenues it already receives.
Income tax reform is another option. The massive and growing disparity of wealth in NY and the US is a fundamental cause of our present economic crisis and needs. The Progressive Caucus of the NYC City Council recently proposed changing the state and city income tax laws to recapture part of the hundreds of billions of dollars in a tax cut windfall recently given to the wealthy by Congress.
If New York went back to the progressive income tax structure we had in 1972, the state would raise $8 billion more in revenue while giving 95% of New Yorkers a tax cut. In 1972, New York State had a personal income tax with 14 graduated brackets, ranging from a low of 2% to a high of 15%. Today New York has only five flatter brackets, between 4% and 6.85%. Most people with a full-time job reach the top bracket. A single person reaches the top 6.85% rate once his or her taxable income reaches $20,000, a married couple at $40,000. A more progressive income tax would increase state revenues and, due to the tax cut for the working and middle classes, increase consumer demand to help the economy recover.
The state’s fiscal crisis is not due to excessive spending, but rather to under-taxing the wealthy. Let’s not make the state’s economy and fiscal crisis worse with austerity measures that cut public spending while leaving the existing regressive tax structure in place.
There are certainly areas of wasteful spending that should be addressed. We need to control our skyrocketing health care costs, by far the biggest part of the state budget. The first step should be to eliminating the enormous waste associated with our odd system of private health insurance. We need to stop spending billions of dollars on economic development and tax expenditures that reward campaign contributors rather than creating jobs. We need to stop wasting enormous amounts of tax dollars in contracting out services, such as we witnessed with the recent payroll scandal in NYC. We need to stop the endemic graft among state legislators.
It seems like every politician these days talk about a green vision for the future of New York. That will only begin to be realized under your tenure as Governor if you provide the leadership needed to make the necessary public investments to rebuild New York for a sustainable prosperity.
2010 Green Party candidate for NY Governor