Click HERE to see Chairman Cox's op-ed as it originally appeared in the Daily News.
New York, one of the most heavily taxed states in the nation, needs a new approach to growing jobs.
Income-tax-free states like Florida beckon successful New York investors and entrepreneurs — who in our state pay state and local taxes at combined marginal income tax rates approaching 20%, not to mention sky-high property taxes.
But what’s especially troubling, and not given nearly the attention it deserves, is the state’s punitive treatment of capital gains.
Capital gains are the profits earned from investments like stocks, bonds or real estate.
Most states, not to mention the federal government, tax these investments at a rate lower than ordinary income.
Not New York.
Ours is one of 21 states that treats capital gains as ordinary income. That means the money earned on investments is then subjected to a punishing tax regime for high incomes — one that eliminates deductions and applies the highest rate to the entire, and not just marginal, income.
No wonder the geese that have laid golden eggs for years in New York are taking flight.
Energy funds and investors flee to income-tax-free Texas; retirees go to Florida; and “hedge fund row” is now located in Connecticut.
This is a particular problem for long-term capital gains, which unlike ordinary income are often realized only after a period of years and include inflationary gains.
That the world’s financial capital chases away some of our most productive citizens — who are eager to invest, build and leave an economic legacy — explains in part the state’s revenue gaps.
The federal record demonstrates that tax revenues rise as capital gains tax rates are cut.
President John F. Kennedy famously said that the “tax on capital gains directly affects investment decisions, the mobility and flow of risk capital, . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.”
ABC’s Charlie Gibson summed up the benefits of cutting capital gains taxes when he asked Obama in the 2008 primary debates why he wouldn’t take such an approach when “history shows that when you drop the capital gains tax, the revenues go up.”
Obama’s answer: “Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”
That’s not only the wrong answer for the nation’s struggling economy. It’s the wrong answer for a New York that is hungry for capital investment and the employment opportunities that go with it.
While Gov. Cuomo has implemented “tax reform” to restore what he calls “fundamental fairness” — adjusting bracket rates and indexing them to inflation (the latter, a very positive step) — he has yet to propose boldly slashing long-term capital gains rates.
It is the logical next step to a more economically vibrant New York.
Annual state revenues from the income tax on capital gains are in the range of $5 billion. A gradual reduction in the rate on long-term capital gains would produce revenues from additional capital investment to offset the impact of the rate reductions.
The message to New York’s rightfully skeptical entrepreneurs and investors would be that New York welcomes investment.
If we are to be a true “world-class center” for technology, as Cuomo said in his State of the State speech, we must incentivize high growth high-tech businesses, which are highly mobile and acutely sensitive to capital gains tax regimes, to come here.
The governor was right on when he stated in his inaugural address that “New York has no future as the tax capital of the nation.” To that end, our next step should be a phased reduction of the tax on long-term capital gains.