“Also helpful was a tax reform report from Republicans in the state Senate, which pointed out that eliminating targeted tax credits would make it possible to cut the overall corporate tax rate by 25%.”
Yeah helpful, but now put it in place: Simplifying the tax code, therefore reducing bureaucracy and cost of government, as well as the costs to business, consequently the cost to consumers as well, and the strain on our private sector economy overall, is exactly what we need to do. The result would be tax reductions across the board for everyone, exactly the way it should be!
Tax credits, often economically counterproductive, cost us billions
NEW YORK DAILY NEWS Tuesday, November 26, 2013
They might be the fastest-growing form of welfare in New York State — and they have nothing to do with feeding the poor, healing the sick or supporting the elderly.
They’re the form of corporate welfare known as business tax credits — and they’re taking an increasingly huge bite out of state finances.
The state will dole out almost $1.8 billion in tax credits to businesses this year alone, an amount that has almost doubled since 2010. That startling fact comes from a study prepared for Gov. Cuomo’s tax reform commission — which should jolt Albany to roll back or eliminate the worst giveaways.
Other eye-opening findings from the study by Donald Boyd of the Rockefeller Institute of Government and Marilyn Marks Rubin of John Jay College:
-Many of the tax credits are “refundable,” meaning they go beyond merely reducing or eliminating a company’s tax bill to actually cutting a check from the state treasury — sometimes for tens of millions of dollars.
-Only about 1% of companies doing business in New York see any benefit from these tax credits at all. Many are highly profitable real estate developers and film and TV production companies.
-Worst of all, Boyd and Rubin found evidence that many credits do not work as advertised to improve the state’s overall economy — or even to accomplish narrower goals, such as cleaning the environment.
The two richest tax credits also happen to be the worst boondoggles — the brownfield tax credit and the film and TV production tax credit.
This brownfield program first was sold as a way to promote the cleanup of tracts of land contaminated by industrial pollution, a scourge of poor neighborhoods. But it was all too easily hijacked by high-rolling developers in midtown Manhattan and other high-rent zones.
They could qualify for the program without even proving that their property was seriously polluted — and claim a tax credit for the entire value of the project, not just the cost of any cleanup.
The most famous example: a Ritz-Carlton Hotel built in White Plains that won credits worth $114 million — even as state records showed that it spent nothing on remediation. The number of actual brownfields getting cleaned up, however, has declined since the law was passed.
Despite reforms enacted in 2008, the program remains wide open to abuse — and is expected to cost the state more than $500 million this year.
Meantime, this year the state will throw another $400 million at the film and TV industry — and not just small-time studios, but major players, too. Under changes made this year, NBC will qualify for millions in credits for moving “The Tonight Show” from Los Angeles to New York when Jimmy Fallon takes over as host.
While defenders say these subsidies pay for themselves by stimulating job creation, Boyd and Rubin raise doubts about these claims. They further point out that the film and TV industry accounts for less than 1% of the state’s employment, but collects 22% of its tax breaks.
Targeted tax breaks have come under attack from policy wonks across the political spectrum. Liberals oppose them for putting more money in the pockets of the wealthy while reducing available funding for schools, health care and other priorities. Conservatives don’t like the way they distort market forces and make the tax code needlessly complicated and inefficient.
But tax credits tend to be catnip for elected officials of all stripes. Democrats and Republicans alike love taking credit for supposedly promoting worthy goals — such as creating jobs or promoting green technology. They like going to ribbon cuttings. They especially like collecting campaign contributions from the people who lobby them, year in and year out, to tweak the tax code in one way or another.
That said, there are glimmers of hope for reform. Cuomo — who has both expanded the tax breaks for film and created new ones through his Start-Up New York program — deserves credit for at least putting the issue on the table through his tax reform commission.
The panel did not incorporate all of Boyd and Rubin’s findings in its final report, but it did call for rolling back the film program and doing a serious cost-benefit analysis of other benefits.
“If you eliminated all the credits, you could cut business taxes enormously for everybody,” said commission cochair Peter Solomon.
Also helpful was a tax reform report from Republicans in the state Senate, which pointed out that eliminating targeted tax credits would make it possible to cut the overall corporate tax rate by 25%.
In the same report, however, the Senate GOP also recommended making the brownfield tax credit permanent and expanding the film tax credit — a tribute to how politically hard it will be to make serious change.
Hard? Sure. But worth every penny.