OP-ED: "WINDFALL MAKES CASE FOR REFORM," CRAIN'S NEW YORK BUSINESS

Click HERE to see the Chairman's op-ed as it appeared in Crain's New York Business.

Republican state Senate Majority Leader Dean Skelos has suggested that “if this positive trend continues, the governor and state Legislature should focus on cutting taxes so businesses across the state can use the resulting savings to create new jobs.”

The “positive trend” Mr. Skelos referred to is the unanticipated $2 billion of revenue in the state's General Fund, due to a 30% increase in tax receipts. But with New York's economy growing at only 2% and Gov. Andrew Cuomo keeping his pledge not to raise taxes, why the large increase?

In part, it can be explained by the state's archaic income tax structure, which causes increases even when rates remain the same.

Unlike the federal government and most states, New York does not index tax brackets to inflation, and it taxes long-term capital gains as ordinary income, even if gains are a result of inflation. And unlike most states, New York has its own minimum tax. Like the federal alternative minimum tax, New York's minimum tax is supposed to apply to tax-avoiding millionaires, but failure to index it to inflation hits small businesses as well.

For personal and small business incomes, the impact of these hikes is compounded by the loss of deductions in higher brackets and the application of the higher-bracket percentage to all—not just marginal—taxable income.

It is shocking that the world's financial center would tax long-term capital gains as ordinary income. The record shows that federal tax revenues consistently rose as capital gains tax rates were cut during the Kennedy and Reagan administrations.

To tackle automatic increases in New Yorkers' tax burden, Republican state Sen. John DeFrancisco, chairman of the Senate Finance Committee, has introduced legislation that would adjust to inflation the taxable income brackets, standard deduction and dependent exemption.

And Republican governors in competing states are rewriting tax codes to create more business-friendly environments. Govs. Chris Christie of New Jersey and John Kasich of Ohio have cut business taxes, and Michigan Gov. Rick Snyder replaced an onerous business tax with a flat tax. Indiana Gov. Mitch Daniels capped property tax rates for businesses, and Gov. Tom Corbett of Pennsylvania is eliminating certain business taxes and phasing out others.

Earlier this summer, Mr. Cuomo said: “No one has anything over on the state of New York... There is no reason anyone should ever think of leaving this state for any reason..." But New York's tax burden threatens to drive productive citizens to states that are cutting taxes to become more competitive.

After a successful year balancing a budget without increasing tax rates, the governor should use his extraordinary budgetary powers and a supportive Senate to stay on a fiscally responsible course and use any tax windfalls for pro-growth tax reform.

Edward Cox is New York state GOP chairman.