The ongoing Covid-19 pandemic has wreaked havoc on municipal budgets creating shortfalls that are projected to extend for the next few years. Though there are creative funding options and cuts for lawmakers to consider, more painful ones seem imminent in 2021.
Though New York Governor Andrew Cuomo is still holding out hope for aid from Washington (especially once the Biden Administration takes over), he still braced New Yorkers for the likelihood of tax hikes. “I believe there’s going to be a tax increase and I believe a lot of tough decisions will need to be made. I believe there will be a lot of (spending) cuts” he said. The state is seeking $15 billion in aid from the federal government with local governments and agencies such as the MTA needing significant aid as well. Previously, a state budget was sketched out that increases taxes on the very wealthy, reduces spending and borrows heavily. Public employee layoffs would also likely occur as well.
In the 2019-2020 fiscal year New York State collected the following:
- $53.6 billion collected from personal income taxes
- $17 billion collected from state sales taxes
- $7.7 billion collected from business taxes
- $2.1 billion collected from property transfer taxes
- $0.2 billion collected from other taxes and fees from a variety of sources.
So, the three biggest sources of revenue are personal income, sales, and business taxes. As such, tax hikes in an economic recession that has caused the nature of work to change becomes especially tricky. With small businesses decimated by the pandemic, sales tax at the state and local levels has plummeted. Furthermore, the notion of adding more taxes on the backs of small businesses ought to be a non stater. Even misguided attempts to tax large retailers like Amazon will have devastating results for small, independent firms. As for raising taxes on very wealthy individuals, the state must walk a very delicate line. Even before the pandemic, many wealthy individuals were leaving high tax but now that many are comfortable working from home, those numbers may skyrocket to levels that will make economic recovery that much harder.
Clearly, there are no easy solutions to the fiscal crises, but legislators must be smart in ensuring that neither tax hikes nor service cuts prolong the pain.