Governor Cuomo: "SALT was an economic civil war. It literally restructured the economy to help red states at the cost of blue states...When you look at the states that actually bear the burden of the SALT deduction, New York State is at the top of the list. The SALT changes cost New York $14.3 billion."
Year-Over-Year Declines in State's Largest Revenue Stream - Personal Income Tax Receipts - Higher Than Anticipated in New York and Other Blue States
See Presentation Here
Governor Andrew M. Cuomo and State Comptroller Thomas P. DiNapoli today delivered an update on State revenues, after the Division of the Budget observed a decline in Personal Income Tax receipts in December and January. The Governor and Comptroller attributed the decline to the federal tax legislation's elimination of full state and local tax deductibility, which disproportionately impacted New York and other predominantly Democratic states. Similar revenue declines have also been observed in other states. Amendments to the 2020 Executive Budget will include revisions to reflect updated impacts to the State financial plan. More information can be found here.
AUDIO of today's event is available here.
PHOTOS of the event will be available on the Governor's Flickr page.
A rush transcript of the Governor's remarks is available below:
Governor Cuomo: Good morning everyone. Let me thank the Comptroller, Tom DiNapoli, very much for joining us today. To my right is Budget Director, Robert Mujica. We have financial news that is significant and serious and something that the state is going to have to deal with and we want to run through some of the numbers and then we'll be open to questions. I'd also like to thank Pete Grannis from the Comptroller's office for being here. And I'd like to thank the team at the Comptroller's office for their help. We're seeing a changing financial picture. And there are a number of variables that we're trying to determine, so between our budget office and the Comptroller's office, they've been working diligently to try to determine exactly what we're seeing in the economy and what we should do going forward.
Overall, the state is in very good shape and if we are in for rough weather, we have done everything we can to prepare for. The State is in many ways in better shape than it's been in decades. We are very proud that we're the progressive capital of the United States of America. The bills that we've passed over the past few weeks have even helped that and we're leading all across the board. But we also have focused on economic progress and the State's economy is also stronger than it has been in modern times.
We have the highest number of jobs in the history of the State of New York. Just think about that. 8.2 million jobs. Highest number of jobs ever. Taxes are at record lows. The unemployment rate is at an historic low and it's all across the State of New York. Again, some slight regional variances, but the growth is statewide. And we've also been working to diversify our economy because we learned the lesson the hard way back in 2007. The more the diverse the economy, the more resilient. But all of this is threatened by an external force, a national force that we have no control over, which is the so-called impact of SALT that we have been talking about for over the past year.
SALT is complicated. I don't think many people understood it. It was a provision in the tax reform bill, state and local taxes. What does it mean to lose the deductibility of state and local taxes? It's hard for people to get their head around exactly what it means. And frankly I don't think the public at large has focused on it the way they need to focus on it. And much of the concerns about SALT were hypothetical. "Well maybe this, maybe this, maybe this." It is no longer hypothetical. New York State was the number one target under the SALT provision. SALT was an economic civil war. It literally restructured the economy to help red states at the cost of blue states. That's exactly what it did. It was a diabolical, political maneuver. In the tax code that actually raised taxes on Democratic states, lowered taxes on Republican states, and financed the Republican state tax cut from the Democratic states. I mean, if people actually understood what it was that they were doing there would have bene an uprising.
We are now seeing the effect of it. It's no longer in the abstract, no longer, "well maybe this, maybe this, maybe this." We are now seeing in the receipts the effect of SALT. The receipts are down. They're down in both the withholding component and they're down in both the estimated payments that we're seeing coming in. The variance from the projections appeared abruptly in late December. They've continued through January. Typically, 39-46% of the PIT receipts would have come in during this period. The collections are down to about 30% of the target. That is about a $2.3 billion drop in revenues. $2.3 billion as a drop at this point in revenues is as serious as a heart attack. DOB's economic and receipts forecast had anticipated a year-over-year decline. We budget conservatively. We've set up reserves, but this is worse than we had anticipated. It is not a New York only phenomenon. It's states that are suffering under SALT. Especially in the northeast. New York is down 50%, Jersey is down 35%, Connecticut 55%, Massachusetts 50%, California 24%.
What do these states have in common? They are all blue states. If you look at the non-SALT states, you don't see the same drop in revenue. That cannot be a coincidence. Those states have a pure tax reduction from the federal tax law. The SALT states have the federal reduction offset by the tax increase. Now, as I mentioned before, we've been talking about this for a year. I've written pieces on it, I've given speeches on it, I went to the Congress and briefed our Congressional Delegation on it. Again, it's been in the abstract. It didn't become effective until April. And in politics we often take the position, well if it's a problem that we can deal with tomorrow, we will deal with it tomorrow.
When you look at the states that actually bear the burden of the SALT deduction, New York State is at the top of the list. The SALT changes cost New York $14.3 billion. And as I mentioned before, you're funding the tax cuts for the other states from the "blue states." Well, the SALT provision, they added a $10,000 exemption, that solved the problem. Baloney, that solved the problem. 52 of New York's 62 counties are above the $10,000 exemption. The average New York taxpayer has SALT deductions that are more than twice the $10,000 cap. New Yorkers pay the highest property taxes in the nation, highest absolute taxes - Nassau, Westchester. Highest taxes by percentage of home value - Upstate New York - 2.5 times the median state income tax liability.
New York is the largest percentage of taxpayers getting a tax hike of any state. New York State has the largest percentage of taxpayers getting a tax increase of any state. That, my friends, is a damning statement. These changes fundamentally restructure the economy. Business are mobile. People are mobile. They pick up their laptop and they can move. It's not like the old days where the factories had a foundation, and the buildings had a foundation, and you couldn't pick up the building and move. You can move. Hedge funds can move. Financial institutions can move. Investors can move. You literally pack up your computer, you move to any other state, you do business over that computer, which means you're doing business in that state and you're taxed in that state.
SALT encourages high-income New Yorkers to move to other states. And what you have to remember is even if a small number of high-income taxpayers leave, it has a dramatic effect on this tax space. We have one of the most progressive tax codes in the United States, which is a good thing. Which means the richer you are, the more you pay. However, that presents a very fragile economy because then you are relying on a very small number of people for the vast amount of your tax dollars. One percent of the taxpayers pay nearly half of all the taxes. One percent pay nearly half of all those taxes. Those one percent are the richest people in the state, they're the richest people in the country, and they are the most mobile people in the country. And you see the chart on the bottom. Top one percent - about 46 percent. Top five percent - 63 percent of all the revenue. Top 10 percent - 74 percent of all the revenue.
Tax the rich, tax the rich, tax the rich. We did. Now, God forbid the rich leave. More than 95 percent of the tax increase from SALT falls on the top 20 percent of taxpayers. Before SALT, a New York City taxpayer - city, state, federal - paid about 45 percent. After SALT, that tax increase goes up about 12 percent. A taxpayer in Florida would see no increase, probably would see a decrease, and Florida also has the advantage of no estate tax. Not that that affects me at this point in my life, but there may come a point. No it would never affect me, because I don't have any estate that would be taxed on my passing.
Taxpayers are adjusting in response to SALT. These are educated, financial people by definition. They are investors, they've earned a lot of money, they're working with accountants, they're working with investment advisors. They're making informed decisions. We have been hearing all along from the major accounting firms, to major individuals, that this is going to be the tipping point and that people now will be making a decision to make a geographic location change. And the SALT provision, remember, did not go into effect yesterday. It had over one year to adjust, so you didn't have to move on 24 hours' notice. You had one year to start to plan a move. And it goes into effect this April, so if you had to move or decided to move, now is the time that you would do it.
What does it mean for the state? Well, if you are losing tax revenue it's going to affect your budget overall. And we just put forth the budget and our budget priorities. But if you lose $2.3 billion, you have $2.3 billion less to spendthat is simple, undeniable math. And you look at our funding priorities, it's education, it's healthcare, it's infrastructure and we have a middle class tax cut. Those are the main expenditures. Those would be the main areas that would be affected by a cut. The unfairness of this is one of the most gross inequities that government has prosecuted. New York already contributes more toward the federal government than any other state. We are what they call the number one donor state, which means we give more to the federal government than we get back, and we give more to the federal government than any other state in the United States of America. We give in $35 billion more. Recent estimates is that 10 states, or donor states, 40 states get more from the federal government that they put in. And by the way, this is a federal government that's against redistribution, right? Their whole argument is we should not, capitalism should not redistribute income. If the rich make money, you shouldn't tax them because they don't believe in redistribution. Oh I see, but a rich state which is comprised of rich people, then you're totally in favor of redistribution. It is the height of hypocrisy.
Now, SALT is not happening in a vacuum. SALT is happening with a number of other factors that are going on in the economy overall. There has been fluctuation in the financial markets, we know that. The IRS is taking aggressive actions; we have taken aggressive actions in suing the federal government on some of their policies. The federal shutdown added a degree of dysfunction and uncertainty to the economy. So, it is SALT as well as other factors that are now at play in the economy. What must we do? Financial diligence, which is what we have been doing, which is why our economy is stronger than ever before. We haven't spent money we don't have, we have reserves, our bond ratings are all up, we've shown financial responsibility and integrity, thanks to Comptroller's good guidance. I think we have some of the soundest financial footing this state has ever had. But we must maintain that, and if we know there's a cut, we're going to have to take that cut into account when we do this budget and it has to change. This is a long-term restructuring of the U.S. economy. What you have done is you have said of the states, we're going to take a certain number of states, happen to be red states, and give them a tax advantage. It would be as if we said in the State of New York: Queens, Brooklyn, Nassau, Suffolk have one tax rate, and the other counties have a higher tax rate and then we were shocked when people move to those counties with the lower tax rates. Of course they're going to move. Of course people are going to do what's in their best financial interests.
And SALT must be repealed. I said it was politically diabolical. It's also highly, highly defective. And if you're political goal is to help Republican states and hurt Democratic states, this is exactly the way they do it. You now have a Democratic congress, I hope they understand this, I hope they understand the urgency. And I hope they address it. If I was a member of the Democratic congress, I would say no budget is passed, until you right this wrong. This was ham handed, it was done by a President who controlled the Senate and the House, and the Democrats had no voice. Now that the Democrats are back at the table, this would be number one on my agenda. Because this literally restructures the economy. And if you don't change it, you're going to do permanent damage.
With that, let me turn it over to the Comptroller once again, this is right in his bailiwick. He is charged with safe guarding the finances of the state, watching these trends over time, and making sure the political process, which tends to like to spend money, and tends to like to take the more aggressive, optimistic view. The Comptroller takes a more objective rational view and his guidance has been very helpful to the Executive and his guidance going forward as we figure out this situation as we get more returns and more data. We see what's going on with the economy, it's going to be very, very helpful. With that Tom DiNapoli.
Comptroller DiNapoli: Thank you Governor, thank you very much. It will be easy for me simply to say "ditto" but I'll say a little bit more than that. Certainly want to echo the points that you have laid out very clearly and very forcefully. And I commend you for not just putting out a report but in fact gathering the press here because I do think it is a moment in time where it's very important that the people of our state are aware of the situation, very important that our colleagues in the legislature as they start the serious negotiation on the budget that they are aware of the situation.
This is the most serious revenue shock that the state has faced in many years. We can't say that enough or emphasize that enough. That $2.3 billion figure frankly Governor I think could get worse before it gets better based on the numbers as we see them. And I think the message really is a word of caution. Recognizing that this is a reality and a problem is a way for us to get ahead of it. And I think it would be fair to say there certainly is time as part of the budget process for us to manage the reality of what these numbers are. The numbers of course over time could get better, we know that April is also a time of great deal of activity around the April15 date so, it's not all gloom and doom but it is a message, of very, very serious concern, very, very serious words of caution.
The issue of SALT that the Governor has spoken to very clearly, not just today but on many occasions, I think is a prime factor for the impact that we're seeing, the negativity in revenue in January. We certainly have all heard anecdotally as the Governor pointed out, people who say they're going to change their legal address, and I think these numbers show that in fact that is probably a big part of the picture. There are other federal tax changes, repay creation of foreign earnings could have an impact. We know Wall Street volatility, the Governor briefly touched on it, certainly from the perspective of our pension fund. We know that fourth quarter of calendar year 2018, we took a significant hit after three quarters of very positive returns. So now as we come to 2019, the bonus season, as you know we put out our numbers, we don't have them yet, we don't know what the impact will be of that last quarter on the Wall Street bonuses that often have provided a cushion in the first quarter of the calendar year which of course is the final quarter of the state's fiscal year. So there's still some uncertainties out there. But certainly if you are an upper income New Yorker, many people already have a second residence. And very easy for you to just change your legal status. And of course, Governor like you, I'm concerned about those neighbors of mine on Long Island who don't necessarily have that second place already, and they can't just live somewhere else. So these impacts will really effect middle class New Yorkers in a significant way as well.
I do want to reemphasize another point the Governor made, because we have such progressive tax policy in our state, and you saw the chart. Just to take that top line of the chart, one percent of New Yorkers carry the freight for 46 percent of that income tax revenue. That's a pretty stark figure and those in fact are the folks who will be most mobile and most impacted by SALT and the federal tax changes. One area where I also want to point out something positive, and perhaps an area where we need to do even more, in the Governor's executive proposal we're seeing a significant down payment for our reserve funds much better frankly than we've seen in recent years. Governor, I suggest it might be an area with the Legislature to do even a little more because we do have to be prepared for a storm that seems to be very much on the horizon. So my staff and I certainly look forward to continuing to work with the Governor and his team and the Legislature as well to make sure that we're operating from a common set of numbers. But we see the numbers in the same way that the Governor and his team has laid out and we see the dynamics that have led to this revenue shock. We see it very much the same way that the Governor and his team sees it. So, the word is 'caution.' New York always knows how to respond to challenges. The Legislature will be briefed by the Governor and his team and a cooperative effort will get us through this challenging fiscal time.