Why do New York politicians hate small business?

By Grover G. Norquist and Patrick Gleason
December 17, 2013

New York Governor Andrew Cuomo appointed a commission to figure out how to make the Empire State more business-friendly and change its reputation for high taxes. The New York state government is now running commercials on national television touting the tax breaks that businesses can get by relocating there. “Small Business Saturday” – the annual post-Thanksgiving event encouraging folks to patronize small businesses — was heavily promoted in nearly every media outlet.

However, there may be no place in the country that treats small businesses worse than New York. Harmful policies come out of both City Hall in Manhattan and the State House in Albany. The commercials, narrated by Robert DeNiro and set to Jay-Z’s iconic song, Empire State of Mind, may look cool, but what New York needs to make itself more conducive to investment, job creation and economic growth, is better fiscal policy. Not more glamour.

Though it’s great to see Cuomo own up to the fact that New York’s tax climate is inhospitable to employers — and events like Small Business Saturday are nice — this doesn’t change the fact that New York’s political class is uniquely hostile to small business. To the detriment of the entire state economy.

Step one is admitting you have a problem and Cuomo has done this with his commission. He has offered to waive taxes for businesses that set up shop in certain parts of the state, such as Albany. But then he signs bills that harm employers across the state.

If Cuomo, a 2016 presidential prospect, does decide to run, he might have trouble explaining the 2011 tax package he signed — if he makes it to the general election. Cuomo’s tax plan, as the Wall Street Journal described it, tossed out “the most desirable part of New York’s tax code, which is its relative flatness…The new code will include a ‘progressive’ ladder: 6.45 percent for couples earning between $40,000 and $150,000, 6.65 percent from $150,000 to $300,000, 6.85 percent from $300,000 to $2 million, and 8.82 percent above $2 million ($1 million for individuals).”

Cuomo portrayed his proposal as a tax hike on “the rich.” That may sound like music to the ears of many New York Democrats. But the unmentioned target of this tax increase was small business.

Cuomo’s tax plan hit more than 8,000 New York small businesses with a whopping 27 percent rate increase, according to Internal Revenue Service data. This figure, however, only accounts for sole proprietors. Factoring in S-Corps and partnerships that also pay the individual income tax, more than 10,000 New York small businesses saw their taxes go up under Cuomo’s plan.

Employers with tight profit margins can’t survive such a big increase in Albany’s cut of their business. Those that can saw a significant reduction in their job creating capacity as a result of Cuomo’s tax hike.

In addition to his tax policies, Cuomo’s continuation of New York’s ban on hydraulic fracturing prevents some of the most depressed parts of the state from realizing the economic growth and prosperity taking place just across the border in Pennsylvania, where local businesses are benefitting from the Keystone State’s exploitation of the resources found in the Marcellus Shale — which also runs under New York.

Small business owners in New York City, where employers face some of the highest tax rates in the world, have it particularly bad. Unfortunately, the election last month of Bill de Blasio as mayor suggests their plight is only going to get worse.

The Big Apple is one of few U.S. cities that levies a personal income tax, and de Blasio ran on a proposal to raise it by 14 percent for those earning more than $500,000. Taking a page from President Barack Obama’s playbook, de Blasio portrays his cash grab as a tax hike on rich plutocrats with Scrooge McDuck-like vaults of money in which they can swim around.

But what de Blasio neglects to mention is that his tax increase, as with Cuomo’s, would also ensnare thousands of small businesses — the majority of which file under the individual income tax system. New York City is already one of the costliest locales in which to operate a small business, and de Blasio is about to make Gotham even less hospitable to employers. Worse, his hike would come on top of Cuomo’s state tax increase.

With technology today, people no longer need to live in Manhattan to work in finance — and suffer the punitive taxation that comes with it. While it looks like New York City will lurch leftward under de Blasio, financial centers it competes with, such as London, are becoming ever more attractive alternatives.

As George Osborne, Britain’s chancellor of the exchequer, wrote in Tuesday’s Wall Street Journal, on the other side of the pond the “corporate tax rate is being cut to 20 percent from 28 percent. The top rate on income has been cut to 45 percent from 50 percent…This will strengthen Britain’s reputation as the home of global finance.”

What’s amazing is that New York politicians aren’t even content with limiting their anti-small business policies to their own borders. Outgoing New York City Mayor Michael Bloomberg spent more than $1 million of his own fortune on an initiative on the Colorado ballot last month that sought to impose a progressive income tax system, raising the state’s top rate by nearly 30 percent. IRS data shows that this tax hike would’ve hit more than half a million Colorado small businesses.

It turns out that Colorado voters aren’t the ignorant rubes that Bloomberg took them for. They rejected that Bloomberg-supported tax hike by a 2 to 1 margin. The mayor’s measure went down in flames, despite out-spending his anti-tax hike opposition by $10 million.

New York’s hostile business tax climate — the worst in the country, according to the non-partisan Tax Foundation — is not without real consequences. From 2000 to 2010, more than 1.2 million tax refugees fled New York, taking over $45 billion in income with them.

Rather than spending taxpayer money on commercials featuring celebrities, or supporting local proprietors for one day out of the year, New York politicians can show that they really support small businesses by reversing current policies that do so much harm.

 

PHOTO (TOP): New York Governor Andrew Cuomo, after a press conference about the re-opening of the Statue of Liberty in New York, October 13, 2013. REUTERS/Carlo Allegri

PHOTO (INSERT 1): Crates filled with 2011 tax forms are seen at the 96th Street Public Library in New York April 17, 2012. REUTERS/Shannon Stapleton

PHOTO (INSERT 2): New York City Mayor Michael R. Bloomberg meets with incoming Mayor Bill de Blasio (L) at City Hall after his election victory in New York, November 6, 2013. REUTERS/Andrew Kelly

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