Special Tax Breaks Costly and Complicated

Gov. Cuomo’s proposal to create tax-free business zones on New York State’s college campuses has had at least one positive influence on public policy discourse in Albany.  It has brought to light the reality that our federal and New York State tax codes are composed mainly of dozens and dozens of special tax breaks granted to selected individuals and to selected industries.  As evidenced by Rick Karlin’s piece in the June 10th issue of the Times Union entitled “Tax Breaks Cost Millions,” not everyone is pleased when tax breaks are granted to a select group of taxpayers.

The Civil Service Employees Association correctly points out that these special tax breaks would be granted only to certain businesses and their employees while being paid for, effectively, by the businesses and workers who pay taxes and will continue to
do so.  So, what else is new?  Our tax codes have grown to thousands of pages of enormous complexity because special tax breaks are added nearly every year.  It is no wonder that sixty percent of Americans can’t prepare their own tax returns.  “Tax Simplification” is a term tossed about from time to time by Congress, but there has been no real movement towards that
either in Washington or Albany.  This complexity exacts a kind of a tax itself on the public, in both record-keeping and compliance costs.  What is worse still is that many of these programs or tax expenditures do not even accomplish their intended purposes.

Mr. Karlin cites the statements of Elizabeth Lynam of the Citizens Budget Commission, who points out that these “tax expenditures” get overlooked in relation to direct spending items in the budget.  Indeed, tax breaks rarely have to be appropriated or renewed, rarely get evaluated in terms of accomplishing their objectives, and in general receive very little scrutiny.  Their cost, however, is enormous.

The favored tax status granted to public pensions in New York State is particularly costly, as Karlin points out, over $850 million per year.   It is not uncommon for a retired couple with two public pensions and two Social Security checks to take in $150,000 a year or more, and not pay a dime of state income taxes.  That’s a tax break that costs the workers in this state dearly, but is rarely if ever discussed, I would wager, in policy-making sessions.

Karlin also points out that the botched Empire Zones program, which granted huge tax benefits, failed to create the promised jobs, failed to revitalize Upstate and was riddled with fraud and abuse.  The program has cost taxpayers billions and many companies will continue to receive these special tax credits for several years into the future.   It remains to be seen if the new “Tax-Free Zones” program, if approved by the state legislature, will perform any better than its predecessor, the Empire Zones program.  All New Yorkers can be hopeful that the program will help create jobs and will be run efficiently.  Two things, however, are fairly certain:  most New Yorkers will continue to pay the highest state and local tax burden in the nation, and the state tax code will get quite a bit more complicated, again.

Richard Mulvey, CPA

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