BILL NUMBER: S2833

SPONSOR: HOYLMAN
 
TITLE OF BILL:

An act to amend the tax law, in relation to the imposition of additional
tax on certain business income and on business income included in an
individual's New York taxable income

 
PURPOSE OR GENERAL IDEA OF BILL:

To generate increased tax revenue for New York State by off-setting the
federal undertaxation of corporate profits and pass-through business
income as a result of the 2017 Tax Cuts and Jobs Act.

 
SUMMARY OF SPECIFIC PROVISIONS:

Section 1 of the bill amends Article 9-A of the Tax Law ("Franchise Tax
on Business Corporations") by adding a new section 209-N, imposing an
additional tax on corporate income equal to the difference between the
federal corporate income tax rate (currently 21%) and the corporate
              

income tax rate prior to the enactment of the 2017 tax legislation known
as the Tax Cuts and Jobs Act (when such rate was 35%).

Section 2 of the bill amends Article 22 of the Tax Law ("Personal Income
Tax") by adding a new section 608, imposing an additional tax on any
amount deducted from an individual's pass-through business income for
federal income tax purposes. This additional tax offsets the 20%
deduction available under section 199A of the 2017 tax legislation known
as the Tax Cuts and Jobs Act, and applies at the highest federal income
tax rates that would otherwise apply to the taxpayer. Small business
owners who benefit from the pass-through deduction are not subject to
this additional tax.

Section 3 is the effective date.

 
JUSTIFICATION:

New York is an exceptionally wealthy state. Treated as a separate coun-
try, it would have one of the world's largest economies. With such a
strong economy, all New Yorkers should have fundamental economic rights:
access to high-quality education, affordable healthcare, guaranteed
housing, and basic social services and social insurance. New York must
also finance investments in green energy, green jobs, and green infras-
tructure in order to mitigate the catastrophic risks of climate change.

New York is also the most unequal state in the nation, in part because
our tax system has not kept pace with changes in the economy, leaving
the many high-earning professionals and wealthy families in this state
undertaxed. Economic growth from recent decades has overwhelmingly bene-
fitted a small segment of elites, while inflation-adjusted wages have
stagnated for the vast majority of working people since the 1970s. The
state government, lacking adequate tax revenues, has been unable to
afford essential public investment and social spending, including
upgrading our infrastructure, repairing public housing, protecting
public education, and financing Medicaid.

While the Federal Government could aid the states in providing essential
services through progressive tax and spending measures, it instead
continues to give tax benefits to corporate interests. In 2017, the
Federal Government enacted the tax legislation known as the "Tax Cuts
and Jobs Act" (the "TCJA"), which reduced the corporate tax rate from
35% to 21%. The TCJA also created a 20% deduction for business income
received from pass-through entities, with additional benefits for the
real estate industry.

Big business, already adept at dodging taxes, hardly needed a tax cut.
Moreover, these tax cuts cost the Federal Government trillions of
dollars in tax revenues. Tax revenues from corporate income are now at a
historic all-time low. Now, instead of funding desperately needed social
services and social insurance, these revenues have been diverted to
artificially boosting corporate earnings and inflating stock values.

New York can respond to regressive federal tax policy by imposing addi-
tional taxes that offset these cuts. The state is full of both large
corporations and pass-through business owners that were doing perfectly
well before these tax cuts in 2017. This bill imposes additional taxes
to return to the combined state and federal level of business taxation
in 2017.

The corporate tax increase adjusts to whatever the current federal
corporate tax rate is, so that the combined state and federal corporate
tax rate is equal to what it was in 2017. If the Federal Government
increases the corporate tax rate, this additional tax will adjust down-
wards. The additional tax on pass-through business income similarly
adjusts to offset the federal deduction (currently 20% under 199A). An
exemption is provided for small business owners who benefit from the
pass-through deduction.

 
LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS:

The sponsors estimate the bill would generate an additional $9 billion
in annual revenue for the state.

 
EFFECTIVE DATE:
This act shall take effect immediately.