Joint Legislative Public Hearing on 2018-2019 Executive Budget Proposal: Topic Taxes - Testimonies

Hearing event notice and video:
https://www.nysenate.gov/calendar/public-hearings/february-08-2018/joint-legislative-public-hearing-2018-2019-executive

Transcript:

                                                                   1
 1  BEFORE THE NEW YORK STATE SENATE FINANCE
    AND ASSEMBLY WAYS AND MEANS COMMITTEES
 2  ------------------------------------------------------
 3          JOINT LEGISLATIVE HEARING
 4             In the Matter of the
            2018-2019 EXECUTIVE BUDGET
 5                   ON TAXES 
    
 6  ------------------------------------------------------
 7                           Hearing Room B                                                   
                             Legislative Office Building
 8                           Albany, New York
    
 9                           February 8, 2018
                             9:37 a.m.  
10  
11  PRESIDING:
12           Senator Catharine M. Young 
             Chair, Senate Finance Committee
13  
             Assemblywoman Helene E. Weinstein
14           Chair, Assembly Ways & Means Committee
    
15  PRESENT:
16           Senator Liz Krueger 
             Senate Finance Committee (RM)
17  
             Assemblyman Robert C. Oaks
18           Assembly Ways & Means Committee (RM)
    
19           Assemblywoman Sandy Galef
             Chair, Committee on Real Property Taxation
20  
             Senator Diane Savino
21           Vice Chair, Senate Finance Committee
    
22           Assemblyman David Buchwald
    
23           Senator James N. Tedisco
    
24           Assemblyman John T. McDonald III
    
                                                                   2
 1  2018-2019 Executive Budget
    Taxes
 2  2-8-18
    
 3  PRESENT:  (Continued)
    
 4           Assemblywoman Patricia Fahy
    
 5           Assemblywoman Earlene Hooper
    
 6  
    
 7  
    
 8                   LIST OF SPEAKERS
    
 9                                    STATEMENT   QUESTIONS
    
10  Nonie Manion 
    Acting Commissioner
11  Amanda Hiller
    Deputy Commissioner and
12   Counsel
    NYS Department of Taxation
13   and Finance                            
        -and-
14  Robert Mujica
    Director
15  NYS Division of Budget                  6         17
    
16  Kenneth J. Pokalsky
    Vice President
17  The Business Council of NYS           140        151
    
18  Edmund J. McMahon
    Research Director
19  Empire Center for Public Policy       158        171
    
20  Michael Kink 
    Executive Director
21  Strong Economy for All 
     Coalition                            194       203
22  
    Erin Tobin
23  VP, Policy and Preservation
    Preservation League of NYS            213       218
24  
    
                                                                   3
 1  2018-2019 Executive Budget
    Taxes
 2  2-8-18
    
 3                   LIST OF SPEAKERS, Cont. 
    
 4                                    STATEMENT   QUESTIONS
    
 5  Eric Linzer
    President and CEO
 6  New York Health Plan Association      220         224
    
 7  Dede Hill
    Director of Policy
 8  Schuyler Center for Analysis
     and Advocacy                         233         239
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                                                                   4
 1                 CHAIRWOMAN WEINSTEIN:  Are we ready to 
 2          start?  After we have had our snow day 
 3          yesterday, we're anxious to get back to the 
 4          hearings.
 5                 Good morning.  I'm Assemblywoman 
 6          Helene Weinstein, chair of the New York State 
 7          Assembly Ways and Means Committee and cochair 
 8          of today's hearing.  
 9                 Today we begin the tenth in a series 
10          of hearings conducted by the joint fiscal 
11          committees of the Legislature regarding the 
12          Governor's proposed budget for fiscal year 
13          2018-2019.  The hearings are conducted 
14          pursuant to the New York State Constitution 
15          and Legislative Law.
16                 Today the Assembly Ways and Means 
17          Committee and the Senate Finance Committee 
18          will hear testimony concerning the Governor's 
19          proposed budget proposals for taxes.
20                 I will introduce our Assembly members 
21          joining us, and then our cochair, Senator 
22          Cathy Young, will introduce the Senators who 
23          are here.  And we're joined by Assemblyman 
24          David Buchwald and Assemblywoman Sandy Galef, 

                                                                   5
 1          chair of our Real Property Committee.  
 2                 Senator Young.
 3                 CHAIRWOMAN YOUNG:  Thank you, 
 4          Chairwoman.  
 5                 And good morning, everyone.  I'm 
 6          Senator Catharine Young, and I'm chair of the 
 7          Senate Standing Committee on Finance.  
 8                 I'm very pleased this morning to be 
 9          joined by my colleagues.  First of all, vice 
10          chair of the Finance Committee, Senator Diane 
11          Savino; ranking member Senator Liz Krueger; 
12          and Senator James Tedisco.
13                 CHAIRWOMAN WEINSTEIN:  And we're also 
14          joined, as we have been for every day of each 
15          of those hearings, by our ranker on Ways and 
16          Means, Assemblyman Bob Oaks, who has no one 
17          yet to introduce.  We'll see.
18                 I just want to remind witnesses that 
19          testimony has been submitted in writing, and 
20          feel free to be concise and summarize your 
21          testimony.  And I'll just remind witnesses 
22          and members to keep an eye on the clock.
23                 With that being said, I'd like to 
24          introduce our first witnesses.  We're very 

                                                                   6
 1          happy to have, from the New York State 
 2          Department of Tax and Finance, the executive 
 3          deputy commissioner, Nonie Manion, and the 
 4          director of the New York State Division of 
 5          the Budget, Robert Mujica.  
 6                 I think, Mr. Mujica, you're going to 
 7          go first, and then the tax commissioner.  I 
 8          think that's how -- so feel free to begin.
 9                 DOB DIRECTOR MUJICA:  Okay, thank you.
10                 Good morning, Chairwoman Young, 
11          Chairwoman Weinstein.  My name is Robert 
12          Mujica.  I'm the state director of the 
13          Division of Budget.  It's always a pleasure 
14          to be with members of the Legislature, but I 
15          wish that the circumstances were different 
16          and that we were not having to discuss ways 
17          to protect New Yorkers from the federal 
18          assault.
19                 Indeed, these are difficult times.  
20          The new tax law was sold as a middle-class 
21          tax cut, but according to the Tax Policy 
22          Center, the largest cuts as a share of income 
23          are going to taxpayers in the 95th and 99th 
24          percentile of the income distribution.  Any 

                                                                   7
 1          benefits that do exist for middle-class 
 2          taxpayers are temporary and expire in the 
 3          year 2025.  In fact, in 2027, 53 percent of 
 4          taxpayers will actually be paying more 
 5          taxes than before the law was enacted.  
 6                 The largest benefit by far is to 
 7          corporations.  The new law lowers the 
 8          corporate rate from 35 percent to 21 percent, 
 9          which is a 40 percent tax cut.  There is no 
10          similar reduction for individual taxpayers.
11                 Furthermore, there are no assurances 
12          that any of the $1 trillion which is being 
13          given away will actually trickle down to 
14          hardworking Americans.
15                 Yes, there are those who support many 
16          of the changes in the federal tax law, but no 
17          New Yorker can support the capping of state 
18          and local tax deductibility.  In this regard, 
19          the federal bill directly and unfairly 
20          targets New York State.  
21                 Some say the rationale for this change 
22          is that SALT is a subsidy to high-tax states.  
23          We know that this claim is false.  The 
24          reality is that New York is a high-income 

                                                                   8
 1          state, and the subsidy goes in the opposite 
 2          direction.  New York contributes more to the 
 3          federal government than any other state -- a 
 4          net $48 billion.  We are the number-one donor 
 5          state in the country, and by eliminating full 
 6          SALT deductibility, the federal government is 
 7          shifting even more of New York State's wealth 
 8          to other states.
 9                 The origin of SALT deductibility dates 
10          back to the Revenue Act of 1862, when Abraham 
11          Lincoln enacted the federal income tax to 
12          fund the Civil War.  The states demanded that 
13          federal tax liability was to be exacted after 
14          state and local taxes were deducted.
15                 SALT was a requirement of the Revenue 
16          Act of 1913 establishing the federal income 
17          tax.  And New York and many other states 
18          built their tax codes around this 
19          foundational premise, that the state taxes 
20          first and then the federal government taxes.  
21          The federal code encouraged local governments 
22          to use deductible taxes in place of 
23          nondeductible taxes to fund education and 
24          healthcare and other services.

                                                                   9
 1                 In 1985, President Reagan tried to 
 2          eliminate the SALT deduction, and he faced 
 3          overwhelming resistance and bipartisan 
 4          opposition.  In response, that same year the 
 5          National League of Cities passed a resolution 
 6          calling SALT deductibility a fundamental 
 7          statement of the historical right of state 
 8          and local governments to raise revenues and 
 9          for individuals not to be double-taxed.
10                 But here we are today; the threat is 
11          now federal law.  And the elimination of full 
12          SALT deductibility has increased taxes for 
13          1.7 million New Yorkers by $14.3 billion.  
14          For many New Yorkers the loss of the federal 
15          deductions means that their property tax bill 
16          will increase by 25 percent.  An individual 
17          earning $100,000 annually will pay $1500 or 
18          more in income taxes.  
19                 Whether most of your constituents are 
20          part of the 1.7 million or not, it will wreak 
21          havoc with our state by hurting our 
22          competitiveness with other states.  People 
23          who are starting businesses that are creating 
24          jobs upstate and downstate are the same 

                                                                   10
 1          people who the federal tax law is pushing out 
 2          of New York altogether.  
 3                 We have made so much progress lowering 
 4          taxes and improving Our competitiveness over 
 5          the past seven years.  The Governor and the 
 6          Legislature have capped local property taxes, 
 7          cut middle-class income taxes, cut business 
 8          taxes, and every New Yorker now pays a lower 
 9          tax than they did seven years ago.  Now the 
10          federal government is undoing all that we 
11          have accomplished.  
12                 And it will wreak havoc with home 
13          values, the principal source of wealth for 
14          our country's middle class.  According to 
15          Moody's, home values in many New York 
16          counties, including Westchester, Nassau, 
17          Putnam, Rockland, Orange and others, will 
18          drop by as much as 10 percent.  Along with 
19          New Jersey, this is the largest impact of any 
20          other state in the nation.  
21                 This theft of New York's home values 
22          is a raid on families' individual assets.  
23          And this is all to deliver a tax cut for the 
24          largest corporations.  It represents the 

                                                                   11
 1          largest wealth transfer ever from New York to 
 2          other states.
 3                 Recognizing how bad it is for 
 4          New York, the vast majority of New York's 
 5          bipartisan congressional delegation voted 
 6          against this plan.  We cannot do nothing.  
 7          The Governor said this before:  To do 
 8          nothing, to sit idle while New Yorkers are 
 9          taken advantage of and while their taxes go 
10          up and property values go down is not 
11          acceptable.
12                 In his budget address, Governor Cuomo 
13          outlined a three-point strategy to defend 
14          ourselves against this attack from 
15          Washington.  
16                 First, we will challenge the loss of 
17          income tax deductibility in the courts as 
18          unconstitutional.  It violates states' rights 
19          and the principle of equal protection.  
20                 Second, we will lead the fight against 
21          this injustice to start our own repeal and 
22          replace effort.  
23                 And third, we will restructure our tax 
24          code to protect New York taxpayers.  This is 

                                                                   12
 1          a massive undertaking.  There are 5,692 pages 
 2          in the State Tax Law -- 13 volumes -- and 
 3          federal tax changes impact almost all of it.  
 4          But this is not unprecedented.  After the 
 5          last major tax reform in 1985, the next year 
 6          was very active for tax reforms in states 
 7          across the country as they adjusted their tax 
 8          codes to deal with the new reality.
 9                 It's our job to protect the state's 
10          taxpayers.  It's what our predecessors have 
11          done before us and what other states are 
12          doing now.  
13                 To guide the evaluation and 
14          consideration of options by state policy 
15          makers, the Department of Tax and Finance 
16          issued a report on the impacts and potential 
17          state policy responses.  The report 
18          identified four key goals:  Promote fairness 
19          for New York State taxpayers, protect tax 
20          progressivity and state services, protect and 
21          enhance economic competitiveness, maintain 
22          the short-term and long-term revenue base -- 
23          keep New Yorkers here.
24                 I would like to thank the commissioner 

                                                                   13
 1          and her staff for their work on this report, 
 2          and it is already bearing fruit.  The report 
 3          identified where the state tax code is 
 4          coupled with the federal tax code, meaning 
 5          the federal tax increase would lead to state 
 6          tax increases as well.
 7                 We have reviewed those proposals, and 
 8          we will be including legislation in our 
 9          Executive Budget as part of the 30-day 
10          amendments to address these impacts.  We will 
11          decouple from the federal tax code, where 
12          needed, to protect our taxpayers.  
13                 Under the legislation, the deduction 
14          for state and local taxes will be maintained 
15          for the purposes of state taxation.  This 
16          action will lower the tax base to which state 
17          tax rates are applied, shielding New Yorkers 
18          from these federal changes.
19                 This issue was created in Washington, 
20          but we can fix it in New York, and the 
21          administration looks forward to working with 
22          the Legislature to get this done.
23                 On all of these options, the state is 
24          working with experts, employers, taxpayers 

                                                                   14
 1          and other stakeholders to develop and 
 2          implement changes to the New York State tax 
 3          code.  This work is ongoing, and there are 
 4          permutations as outlined in the Tax 
 5          Department's report.  It is anticipated 
 6          within the 30-day amendment period that the 
 7          budget will be amended to include specific 
 8          proposals in response to the federal tax law 
 9          changes.
10                 Once again, we cannot simply do 
11          nothing, and the state must act.  Thank you.
12                 EX. DEP. COMMISSIONER MANION:  Good 
13          morning, Chairwoman Young and Chairwoman 
14          Weinstein.  My name is Nonie Manion.  I'm the 
15          executive deputy commissioner at the 
16          Department of Taxation and Finance.  I am 
17          pleased to appear before you today to discuss 
18          Governor Cuomo's 2019 Executive Budget.  
19                 The current budget environment is the 
20          most challenging this state has faced since 
21          the Governor first assumed office in 2011.  
22          Weak revenue growth, coupled with substantial 
23          cuts in federal aid, have combined to create 
24          a $4.4 billion shortfall.  The new federal 

                                                                   15
 1          tax law only compounds these challenges.  
 2                 Governor Cuomo's fiscal policies -- 
 3          most notably, his adherence to the 2 percent 
 4          spending cap -- have ended the era of high 
 5          spending growth and tax increases.  Today, 
 6          every New Yorker pays a lower tax rate than 
 7          they did before the Governor took office.  
 8          Thanks to historic middle-class tax cuts 
 9          enacted by the Governor and the Legislature, 
10          taxpayers will save $26.3 billion over the 
11          Governor's first two terms in office alone.
12                 The Governor has also transformed the 
13          business climate, laying the groundwork for a 
14          more robust, competitive New York State.  
15          New York now has the lowest corporate tax 
16          rate since 1968, and the lowest 
17          manufacturers' tax rate since 1917.  Over the 
18          course of the Governor's two terms, these tax 
19          cuts will save businesses over $7 billion.  
20                 In partnership with the Legislature, 
21          the Governor has also taken landmark steps to 
22          combat the growth in property taxes.  The 
23          state's 2 percent property tax cap, enacted 
24          in the Governor's first year in office, is 

                                                                   16
 1          estimated to have lowered property taxes by 
 2          an average of $2,100.  This was followed by 
 3          the enactment of real property tax relief 
 4          credits that will provide an additional 
 5          $1.3 billion in property tax relief, with an 
 6          average credit of $530 by 2019.
 7                 The federal tax legislation raises 
 8          taxes on millions of New Yorkers and uses 
 9          that money to pay for tax cuts for the 
10          nation's largest corporations and 
11          billionaires.  At the Governor's direction, 
12          the Department of Taxation and Finance issued 
13          a preliminary report outlining options for 
14          state tax reform with the potential to 
15          mitigate adverse impacts of the federal 
16          legislation on New York State.  
17                 The report lays out options for 
18          policymakers to consider in response to the 
19          loss of the deductibility of state and local 
20          taxes.  The report also identifies the many 
21          flow-through impacts to the state's tax 
22          system due to the changes in the federal tax 
23          code where New York is currently conformed.  
24          We hope this report can serve as a framework 

                                                                   17
 1          for discussion of ways that the state can 
 2          adjust our tax code to mitigate the impacts 
 3          of the federal legislation.
 4                 The Governor is committed to 
 5          protecting New Yorkers from the negative 
 6          impacts of the federal tax changes.  For 
 7          example, we anticipate that the Governor's 
 8          30-day amendments will propose that the state 
 9          decouple from the limitation on state and 
10          local tax deductions, allowing the full 
11          amount of local real property taxes to be 
12          deducted from state income taxes.  Congress 
13          has taken actions that, absent changes to the 
14          state tax law, will result in tax increases 
15          for New York taxpayers.  The Governor will 
16          take action to protect New Yorkers in 
17          response.  
18                 Thank you again for the opportunity to 
19          speak with you this morning and for your 
20          ongoing partnership on these critical issues.  
21          I'm happy to answer any questions that you 
22          may have.
23                 CHAIRWOMAN WEINSTEIN:  Thank you.  
24          Thank you both for being here.

                                                                   18
 1                 So it's been several weeks since the 
 2          white paper came out -- pretty dense, 
 3          37 pages.  And obviously you've been moving 
 4          forward in trying to answer some of the 
 5          questions that you raise, with probably just 
 6          about a week to go before we actually see the 
 7          30-day amendments.
 8                 So -- and in that white paper you 
 9          identified some of the unintended 
10          consequences of some of the potential 
11          actions, such as the payroll tax, which 
12          depends in large part on having salaries 
13          lowered.  And I was wondering how -- if 
14          you've thought of ways to address some of 
15          those consequences of people having lower 
16          salaries and what that means in areas such as 
17          alimony support, retirement benefits, 
18          implications for Social Security.  I was 
19          wondering -- without yet having the finalized 
20          details, I assume you've moved in that 
21          direction.  If you could fill us in on how 
22          some of those discussions are happening and 
23          how you think you'll be able to solve some of 
24          those problems.

                                                                   19
 1                 DOB DIRECTOR MUJICA:  Moving from an 
 2          income tax to an employer-based tax was 
 3          listed in the report as one of the options, 
 4          and we also listed their complications too.  
 5          It's difficult -- as you point out, there are 
 6          a lot of other factors that you have to take 
 7          into account.  We're looking at all of those.  
 8          Many of those can be fixed with statutory 
 9          changes, and that's why it's taking time to 
10          go through it.  But for a lot of the things 
11          that you identified, there are statutory 
12          fixes that we could use to take away some of 
13          those consequences.  So we're looking at all 
14          of those now, and those are things I think we 
15          can address.  
16                 CHAIRWOMAN WEINSTEIN:  And we'll be 
17          hearing from our Real Property Tax chair, but 
18          what are some of the -- in terms of the 
19          concept of a charitable deduction, some sort 
20          of a charitable deduction for property tax as 
21          a way to help reduce the amount of property 
22          taxes that people will not be able to deduct, 
23          what are some of the challenges and potential 
24          negative consequences from looking at a 

                                                                   20
 1          charitable deduction for property tax?
 2                 DOB DIRECTOR MUJICA:  So a lot of 
 3          other states are looking at the charitable 
 4          contributions as well.  And when we looked at 
 5          it, an individual can make a donation to a 
 6          hospital presently, they make a donation to a 
 7          school presently, and get a charitable 
 8          deduction.  And before, there was no 
 9          difference between making a charitable 
10          deduction on the personal income tax side or 
11          paying a tax.
12                 Now, if you pay the tax, you don't get 
13          the deduction, but if you made a charitable 
14          contribution, you could.  So we're looking at 
15          ways to reduce people's either property tax 
16          burden or even income tax burden by making 
17          charitable contributions to -- for our 
18          purpose, that government would also fund.
19                 The challenge there is really just 
20          it's complicated in the Tax Law, making those 
21          changes.  We have to adjust on the state side 
22          because we would lose revenue.  Revenue that 
23          would normally come to the state would go to 
24          fund -- whether it be schools, whether it be 

                                                                   21
 1          healthcare, whether it be anything else that, 
 2          you know, we decided to send the money to.
 3                 So there's cash flow issues that we 
 4          have to take into account, there are issues 
 5          related to personal income tax bonds that we 
 6          have to take into account as we shift 
 7          resources from dedicating it to the personal 
 8          income tax to other funds.  But these are 
 9          also things that we think can be overcome, 
10          and the Tax Department has been working on 
11          language to do that.
12                 CHAIRWOMAN WEINSTEIN:  And I just want 
13          to refer back to -- you're saying that in the 
14          30-days we're going to see the uncoupling 
15          that will allow state and local taxes to be 
16          deductible.  You're anticipating having also 
17          the change of uncoupling to allow individuals 
18          in New York State who take a standard 
19          deduction -- or are you allowing individuals 
20          who take the federal standard deduction to be 
21          allowed to itemize in New York State?  Or 
22          would they be restricted to a state standard 
23          deduction also?
24                 DOB DIRECTOR MUJICA:  That's right.  

                                                                   22
 1          Under present law, you had to itemize at the 
 2          federal level in order to itemize at the 
 3          state level.  So we would decouple from that 
 4          and allow individuals to take the standard 
 5          deduction at the federal level and still 
 6          itemize at the state level.  
 7                 CHAIRWOMAN WEINSTEIN:  Okay.  I think 
 8          I'm going to turn it over to the Senate, and 
 9          then we'll hear from our Real Property chair.  
10          Thank you.
11                 CHAIRWOMAN YOUNG:  Good morning.
12                 EX. DEP. COMMISSIONER MANION:  Good 
13          morning.
14                 DOB DIRECTOR MUJICA:  Good morning.
15                 CHAIRWOMAN YOUNG:  First of all, I'm 
16          very glad to hear that in the Governor's 
17          30-day amendments there will be a provision 
18          regarding legislation that was already passed 
19          in the Senate sponsored by Senator Felder.  
20          Director Mujica, is the Governor's plan going 
21          to be any different than what has passed the 
22          Senate, or will it be the same language?  
23                 DOB DIRECTOR MUJICA:  We haven't gone 
24          through exactly, Senator, that bill.  But we 

                                                                   23
 1          did, you know, go through it when it passed, 
 2          and it's substantially similar.  So we're 
 3          going through all of those provisions.  But 
 4          the vast majority of that bill is consistent 
 5          with what we plan to propose in the 30-day 
 6          amendments.
 7                 CHAIRWOMAN YOUNG:  Great.  
 8                 I listened to your testimony, and one 
 9          of the things that I wanted to ask about was 
10          that the Governor has stated that the loss of 
11          the SALT deductibility will cost New Yorkers 
12          roughly $14 billion annually.  How was that 
13          number determined?
14                 DOB DIRECTOR MUJICA:  The 14.3 is 
15          basically we look at the what -- the number 
16          or the amount of deductions that all 
17          New Yorkers presently have under state and 
18          local taxes above $10,000.  So when you look 
19          at that, the remainder was 14.3; New Yorkers 
20          are no longer allowed to deduct state and 
21          local taxes above $10,000.  And that number 
22          is $14.3 billion, and it's 1.7 million 
23          taxpayers.
24                 CHAIRWOMAN YOUNG:  So this number 

                                                                   24
 1          doesn't take into account the reduction in 
 2          rates to taxpayers?
 3                 DOB DIRECTOR MUJICA:  So the reduction 
 4          in rates to taxpayers -- everyone in the 
 5          nation benefits from the reduction in the 
 6          rates to taxpayers.  New York, however -- 
 7          New York and a few other states are far 
 8          disproportionately impacted by the 
 9          elimination of state and local tax 
10          deductibility.  
11                 That's why it's unfair to New York, 
12          because what you're doing is you're saying 
13          we're going to take away state and local tax 
14          deductibility, take $14.3 billion out of 
15          New York, and then we're going to give some 
16          back.  Right?  But the "some back," you're 
17          giving back to everyone.  You're giving far 
18          less back to New Yorkers than you're giving 
19          to everyone else across the country.  So it 
20          doesn't balance out.  
21                 So overall, New Yorkers should be in 
22          the same position as everyone else in the 
23          nation, and if we would have, we'd be 
24          $14.3 billion to the good.

                                                                   25
 1                 CHAIRWOMAN YOUNG:  No, I'm aware that 
 2          we're a net donor state, as you pointed out.  
 3                 I guess the question is, though, the 
 4          14 billion is just what people previously 
 5          were able to deduct under the SALT, right?  
 6          But are there other tax advantages that are 
 7          under the federal tax reform that would 
 8          benefit New Yorkers so that their loss isn't 
 9          quite as much as the $14 billion?  That's my 
10          question.
11                 DOB DIRECTOR MUJICA:  There are some 
12          changes in the federal law that do mitigate 
13          some of the 14.3, but it's still a massive 
14          transfer from New York to other states.  So 
15          while yes, on the margins there are, if you 
16          look at individuals in certain parts of the 
17          state, the higher your -- the reality is that 
18          only 10 states {sic} have average state and 
19          local taxes of $10,000 or below.  So that 
20          means every other county -- so only 10 
21          counties have state and local taxes below 
22          10,000.  So every other county in the state 
23          has taxes above that amount.  In parts of the 
24          state, it's more than double that amount.

                                                                   26
 1                 So -- and then there's also a ripple 
 2          effect, right, where you can't account for 
 3          the declining home values which are a result 
 4          of not being able to deduct your taxes.  So 
 5          there is an attempt by the federal government 
 6          to mitigate some things, but the damage is 
 7          far greater than any benefit.
 8                 CHAIRWOMAN YOUNG:  Thank you.
 9                 So it sounds like you're talking 
10          about -- what was the term you used?  Going 
11          to -- moving to an employer-based tax.  Is 
12          that another term for a payroll tax?
13                 DOB DIRECTOR MUJICA:  It's one of the 
14          options, an employer-based tax.  And a 
15          payroll tax -- anything that's on your 
16          paycheck is a payroll tax.  Unemployment 
17          insurance is a payroll tax, Social Security 
18          is a payroll tax.  
19                 What we're talking about is instead of 
20          having a personal income tax or the same 
21          personal income tax, having an employer-based 
22          tax.  
23                 And I think the issue is that -- as I 
24          mentioned in the testimony, we've been 

                                                                   27
 1          deducting state and local taxes for over a 
 2          hundred years, so we've built our tax code 
 3          around things that we know are deductible.  
 4          When you change a hundred years of precedent, 
 5          we're saying, well, we need to change 
 6          potentially our tax law.  We would not have 
 7          probably used an income tax as the basis if 
 8          it was not deductible if you knew that the 
 9          employer side tax would be deductible.  
10                 So we're saying we need to relook at 
11          that, and perhaps it makes more sense to have 
12          something that is deductible so that the 
13          federal government continues to allow for the 
14          deduction for -- 
15                 CHAIRWOMAN YOUNG:  So hence charitable 
16          foundations, possibly.
17                 DOB DIRECTOR MUJICA:  Exactly.
18                 CHAIRWOMAN YOUNG:  Okay.  What 
19          percentage of the $14 billion estimate that 
20          you gave would be addressed by switching to a 
21          payroll tax?
22                 DOB DIRECTOR MUJICA:  So it depends on 
23          how you do it.  In the Tax & Finance report 
24          it listed multiple options, right?  There's 

                                                                   28
 1          an option for a mandatory employer-based tax, 
 2          there was an option for limiting it based on 
 3          income.  As you go further down the income -- 
 4          as Chairwoman Weinstein mentioned, as you go 
 5          down in income, there's more friction and 
 6          there are more things that you have to 
 7          change.  
 8                 And so it depends on how far down you 
 9          go.  If you do everyone, you can mitigate a 
10          majority of it.  
11                 It only deals with wage income, so -- 
12          you mentioned it.  So dealing on the employer 
13          side only deals with wage income.  You would 
14          have to look at nonwage income as well.  And 
15          in the report we also mention some options 
16          for nonwage income.  We think the pieces have 
17          to work together.  So there's an option -- 
18          all of these pieces are not mutually 
19          exclusive.  So you have something on the 
20          payroll tax side, if you want something 
21          employer-based, you have something on the 
22          charitable side as well, and then something 
23          as well for nonwage income.
24                 Together, we think we can mitigate the 

                                                                   29
 1          vast majority of the 14.3.
 2                 CHAIRWOMAN YOUNG:  So you're not 
 3          saying just a payroll tax or just a 
 4          charitable foundation structure, you're 
 5          saying it could be a combination of many 
 6          different factors.
 7                 DOB DIRECTOR MUJICA:  Exactly.
 8                 CHAIRWOMAN YOUNG:  So -- I have some 
 9          more questions, though.  Wouldn't you have to 
10          continue to have a personal income tax to 
11          account for taxpayers who are self-employed?  
12                 DOB DIRECTOR MUJICA:  So we mention 
13          that -- and the report mentions as well -- 
14          that you could create a whole new system.  
15          It's very complicated to do that and to do it 
16          that quickly.  The federal government passed 
17          this bill, the president signed it on 
18          December 22nd, right.  We're sitting here in 
19          February trying to redo our code.  
20                 So you could replace the system, but 
21          you could also leave the income tax in place.  
22          And if you leave the income tax in place, you 
23          deal with wage income, you have a system of 
24          credits and potentially different alternative 

                                                                   30
 1          taxes to be able to benefit, as you 
 2          mentioned -- it mentioned sole proprietors 
 3          and mentioned partnerships and such.
 4                 So yes, again, the different 
 5          combination of pieces and as well leaving a 
 6          PIT in place in the short term may be one of 
 7          the easier ways to deal with this.
 8                 CHAIRWOMAN YOUNG:  Would that be a 
 9          real burden on the department, though?  I 
10          mean, would you need extra staff, to 
11          administer, two programs or possibly three or 
12          four programs?
13                 EX. DEP. COMMISSIONER MANION:  We've 
14          been looking at all the different options 
15          that are in the report, and we've looked at 
16          the different systems that we have.  We 
17          administer over 40 taxes.  So looking at all 
18          the different systems that we have, we 
19          believe that we have something in place that 
20          can be the foundation for the systems that 
21          would be required for the different models.
22                 CHAIRWOMAN YOUNG:  Okay, thank you.
23                 How do you explain to employees that 
24          their wages are going to be reduced?  I mean, 

                                                                   31
 1          I think that -- even if there's a net benefit 
 2          to them, I think that would be a very 
 3          difficult undertaking, to say to people, you 
 4          know, don't worry about it, we are reducing 
 5          your wages and it may affect your retirement, 
 6          it may affect collective bargaining, it may 
 7          affect your Social Security benefits.  
 8                 How would we do that?  I think you 
 9          could possibly make the Governor and the 
10          Legislature extraordinarily unpopular by 
11          taking that action.
12                 DOB DIRECTOR MUJICA:  So I think you 
13          start from the premise that the federal 
14          government raised your property taxes and 
15          raised your income taxes, right?  By 
16          eliminating deductibility, that's what they 
17          did.  So you start from your income taxes 
18          will go up and your property taxes are going 
19          up as a result of the federal action.  So 
20          that's the first premise.  
21                 And what we're trying to do is how do 
22          we mitigate that as much as possible.  And 
23          how do you mitigate that as much as possible?  
24          You're not paying a dollar more.  There's 

                                                                   32
 1          take-home pay and there's the taxes you pay, 
 2          whether your employer is paying the tax, 
 3          whether you're withholding the tax -- your 
 4          withholding is substantially similar to 
 5          anything else that we're going to do.  So 
 6          whether you're withholding and you never see 
 7          that money, you have the same amount of 
 8          take-home pay.  Whether there's a payroll tax 
 9          as an alternative to an income tax, the 
10          employee should take home the same amount of 
11          money.  So that should stay substantially the 
12          same.  And there's no proposal that we're 
13          looking at which would diminish the actual 
14          dollars that an individual takes home.  
15                 If you don't do this, if you do 
16          nothing, we do know what will happen.  If we 
17          do nothing, income taxes go up, property 
18          taxes go up.
19                 So I think all of the challenges that 
20          you've identified, we're working through.  
21          And we recognize them.  But the alternative 
22          would be to do nothing, and we don't think 
23          that's an acceptable policy.
24                 CHAIRWOMAN YOUNG:  What about -- 

                                                                   33
 1          Director Mujica, have you looked at people 
 2          that are lower income earners and whether 
 3          lowering their wages would then push them 
 4          down into social programs like Medicaid?  And 
 5          what would the implications be of additional 
 6          burdens on the taxpayers if more people are 
 7          thrown into these social programs?  
 8                 DOB DIRECTOR MUJICA:  So those are the 
 9          things that we would have to adjust for, 
10          because those are not outcomes that we're 
11          looking to have happen.
12                 So we mention that on the -- if you do 
13          an employer side tax, that you'd want -- you 
14          can start it at any salary level, it doesn't 
15          have to be for all employees.  You can start 
16          or you can create a threshold.  I think the 
17          report mentioned certain thresholds, and we 
18          can pick what number that is, working with 
19          the Legislature.
20                 But yes, as you go down, there are 
21          more and more changes that we would have to 
22          do to eligibility for certain programs, 
23          et cetera.  But I think you can eliminate a 
24          lot of those by choosing a threshold that's 

                                                                   34
 1          higher than the trigger for many of those 
 2          programs that you identified.
 3                 CHAIRWOMAN YOUNG:  So thank you for 
 4          that.
 5                 So what about people's retirement?  A 
 6          lot of people's retirement amounts depend on 
 7          how much they're earning.  You say there's a 
 8          statutory fix for that?
 9                 DOB DIRECTOR MUJICA:  We can do a 
10          statutory fix for final average salary for 
11          your pensions.  You could change the law to 
12          fix that as well.  So the answer is yes.  
13          Could we change those things, could we fix 
14          those things?  Yeah.  
15                 And again, this has been built over a 
16          hundred years.  We expected all of these 
17          things to be deductible.  If you change it, 
18          there are lots of other places where you 
19          would have to change the law.  But the fact 
20          that you'd have to change those things 
21          shouldn't stop us from doing -- creating the 
22          fix.  Because again, if you don't do 
23          anything, you go back to the same thing, 
24          which is just a massive tax increase for New 

                                                                   35
 1          Yorkers.
 2                 CHAIRWOMAN YOUNG:  How would 
 3          collective bargaining -- how would you fix 
 4          that?  If there's a collective bargaining 
 5          agreement, how would you statutorily fix 
 6          that?
 7                 DOB DIRECTOR MUJICA:  We've been 
 8          talking to -- we've had roundtables and 
 9          discussions with employer groups, with tax 
10          experts.  And we've had labor in the room as 
11          well, so we've been discussing with them.  
12          They understand the challenges, but they also 
13          understand how bad this impacts their 
14          members.  So they're actually sitting at the 
15          table with us, saying:  We recognize that 
16          there's an issue on wages, but let's work 
17          together and figure out how to fix those, on 
18          behalf of their members, because the worst 
19          thing for their members is to pay, you know, 
20          thousands of dollars more in taxes.  They're 
21          all impacted by the property tax elimination, 
22          and they're impacted by the personal income 
23          tax.  
24                 So they get it, and we're working with 

                                                                   36
 1          labor to see how you can adjust for it.
 2                 CHAIRWOMAN YOUNG:  How can you ensure 
 3          that there's a dollar-for-dollar correlation 
 4          between reduced pay and reduced tax 
 5          liability?  Can you ensure that taxpayers are 
 6          held 100 percent harmless?
 7                 DOB DIRECTOR MUJICA:  The four 
 8          principles of the report, right, one was -- 
 9          number one was to protect the taxpayers and 
10          be fair.  So that is what the goal here is.  
11                 The goal here is not to raise 
12          additional revenue for the state, It's to get 
13          as much of the money back from the federal 
14          government as possible and restore us to 
15          where we were.
16                 So that is what we're crafting.  And 
17          that's why it's complicated, because we want 
18          to ensure that no New Yorker is paying more 
19          in taxes now than they were before.  In fact, 
20          they're going be paying less than they were 
21          before the tax bill and perhaps -- perhaps -- 
22          perhaps, because you lower their AGI, even 
23          less than actually before the federal law.
24                 CHAIRWOMAN YOUNG:  But isn't it 

                                                                   37
 1          difficult to get a dollar-for-dollar 
 2          correlation?  
 3                 DOB DIRECTOR MUJICA:  We're not 
 4          looking at a dollar-for-dollar correlation 
 5          between the two.  We're talking about 
 6          replacing, potentially, the personal income 
 7          tax with a tax that's deductible.  And how we 
 8          structure that is what the Tax Department is 
 9          working on now.
10                 CHAIRWOMAN YOUNG:  Okay.  Thank you.  
11          I'll come back.
12                 CHAIRWOMAN WEINSTEIN:  Thank you.  
13                 We've been joined by Assemblywoman 
14          Fahy and Assemblyman McDonald.  
15                 And now we go to our chair of the Real 
16          Property Tax Committee, Assemblywoman Galef.
17                 ASSEMBLYWOMAN GALEF:  Thank you very 
18          much.  
19                 I just wanted to ask some questions in 
20          the area of STAR and real property tax 
21          proposals.  You know, one of the most popular 
22          programs that we have in our state is the 
23          STAR, the school property tax relief program.  
24          When everybody gets their bill at home with 

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 1          their school taxes, they look down there and 
 2          see how much the state is saving them and 
 3          that we have some other -- you're going to be 
 4          coming to a hearing on Monday, so we'll go 
 5          into those particulars.
 6                 But in the budget there is a proposal 
 7          to again return to a zero percent increase in 
 8          the STAR program.  And, you know, given all 
 9          the discussions before about everybody 
10          feeling the impact of the federal government 
11          and the whole issue with local taxes, it 
12          would seem like this is not a year to not let 
13          that formula drive to the 2 percent increase, 
14          as opposed to having it frozen at zero 
15          percent.
16                 So I wondered what the thinking was -- 
17          and maybe there's clarity in the thinking 
18          before the 30-day amendment.
19                 EX. DEP. COMMISSIONER MANION:  Well, 
20          you know that we're in the second year of the 
21          tax relief program.  And the tax relief 
22          program is now calculated based on a person's 
23          income and their STAR benefits they have.  
24                 And for the lower-income people, with 

                                                                   39
 1          the relief, they're getting 28 percent of 
 2          their STAR benefit.  So we think that the 
 3          relief is actually offsetting -- would offset 
 4          a lot of what would be increased in the STAR 
 5          benefit.
 6                 ASSEMBLYWOMAN GALEF:  Well, 
 7          actually -- first of all, that program only 
 8          lasts for another year after this year, 
 9          right, with an increase.  And -- I mean, to 
10          say again to our constituents that we're 
11          limiting the STAR program, which is on the 
12          tax bill -- this other one comes -- I just 
13          got my check last week.  So it comes a lot 
14          later than when you're paying your taxes.  
15          And I think there's an effort, I know in the 
16          Assembly, to really work on making sure that 
17          the increase is driven forward.
18                 So I don't think we necessarily agree 
19          with your approach just because there's 
20          another program.  Last year we also had 
21          another program.  We got a $130 check or a 
22          $170 check.  And we were able to have it 
23          increase, have an increase in the STAR 
24          program.

                                                                   40
 1                 EX. DEP. COMMISSIONER MANION:  Yeah, 
 2          the check that was received last year was the 
 3          first year of the tax relief, and it was a 
 4          flat check.  And now the tax relief is based 
 5          on your STAR benefits and your income.
 6                 We do have our system in place now 
 7          where we're able to issue the relief checks 
 8          much sooner.  So we've been successful with 
 9          that system and getting our STAR credits sent 
10          out prior to the tax bills being on time.
11                 So we can work with the timing.  You 
12          know, we've got a lot more flexibility now 
13          that we have our system up and going.
14                 ASSEMBLYWOMAN GALEF:  Right.  Well, 
15          we'll get into the system because I've had a 
16          lot of people in my office that did not get 
17          it in time.
18                 Another question is on the income 
19          verification program, which I think is a real 
20          good program that anybody in Advanced STAR 
21          would have their income verified through your 
22          office.  But to require it to be mandated I 
23          think is very problematic for many people in 
24          our state.  We're dealing with senior 

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 1          citizens.  Many are not as proficient at 
 2          getting everything to the Tax and Finance 
 3          Department in a way that they should.  
 4                 Is there not an approach that we can 
 5          use for the assessors also to continue to be 
 6          a part of helping seniors that are going into 
 7          the enhanced program be a part of this?
 8                 EX. DEP. COMMISSIONER MANION:  Well, I 
 9          think that the income verification program is 
10          working well.  It works well.  Some areas use 
11          it very wide, other areas don't use it as 
12          much.
13                 Again, our new system has allowed us 
14          to do the automatic verifications with it.  
15          And for the programs that we've been doing 
16          with the relief program and then the STAR 
17          credit, we have had to reach out to some of 
18          the seniors to get income worksheets, because 
19          we have to do income verification for those 
20          programs too.
21                 So I think that we are well along the 
22          way there.  And we are also finding with any 
23          new program that we open up, when we do the 
24          income verification, that there are people 

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 1          that are applying that think that they're 
 2          eligible for it and their income is really 
 3          over the threshold.
 4                 ASSEMBLYWOMAN GALEF:  But what process 
 5          do you go through to initiate all this?  I'm 
 6          just thinking -- you know, it's hard to get 
 7          to the Tax Department with a phone number.  
 8          And these are people that might be using the 
 9          phone and not the internet.  And what 
10          percentage of people are in the income 
11          verification program at this point?  
12                 EX. DEP. COMMISSIONER MANION:  We do 
13          understand that a lot of people that would be 
14          applying for this may not be using the 
15          computer as much.  We've improved our 
16          relationship with our assessors, and we've 
17          provided the assessors with a hotline so -- 
18          understanding that some of these people will 
19          continue to go into the assessor's office.  
20          The assessors can assist them with this.  But 
21          once they sign up for it, it's a one-time 
22          thing.  You know, we'll be able to do the 
23          checks.
24                 So I think that will simplify it.  It 

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 1          might be a little bump in there first, but 
 2          afterwards it will be much easier.
 3                 ASSEMBLYWOMAN GALEF:  So the 
 4          assessor's office, they can get through.
 5                 EX. DEP. COMMISSIONER MANION:  Yeah, 
 6          we have a hotline for them, because -- yes.
 7                 ASSEMBLYWOMAN GALEF:  Okay.  Another 
 8          question about the annual assessment of 
 9          taxable state-owned land.  You're proposing a 
10          new policy that would keep it at the prior 
11          level of assessment of the year 2017 with 
12          state-owned land and then increase it 
13          annually by the growth factor.
14                 Can you explain that a little bit and 
15          what would happen if there's new state land 
16          that is acquired that we adopt, you know, 
17          legislation that would require certain land 
18          to become state land for tax purposes?  And 
19          also, what would happen in a community that's 
20          reassessing their property, so they're 
21          reassessing the state-owned land -- are you 
22          artificially keeping them at a lower level?  
23                 EX. DEP. COMMISSIONER MANION:  If 
24          there's new state-owned land, it would be 

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 1          assessed and then that would be the base 
 2          level.
 3                 For those that are going through 
 4          reassessments, I think everybody that is 
 5          involved in assessing the state-owned land 
 6          understands the challenges with it.  And so 
 7          this is to reduce a lot of that 
 8          administrative burden, both for the locals 
 9          and for the state, in coming up with the 
10          value that the tax should be applied on.  
11                 So by staying with the 2017 and 
12          increasing for inflation, we think it's most 
13          efficient for all.
14                 ASSEMBLYWOMAN GALEF:  So you're saying 
15          that the state is going to assess the 
16          state-owned property.
17                 EX. DEP. COMMISSIONER MANION:  If it's 
18          new.
19                 ASSEMBLYWOMAN GALEF:  If you're in a 
20          reassessment situation --
21                 EX. DEP. COMMISSIONER MANION:  No, not 
22          in a -- in a reassessment situation, they 
23          wouldn't have to reassess for the state-owned 
24          land.  They would be doing their reassessment 

                                                                   45
 1          for the other parts of their community.  The 
 2          state-owned land would stay at the 2017 value 
 3          increased by the rate of inflation.
 4                 ASSEMBLYWOMAN GALEF:  But many 
 5          communities have really not really paid that 
 6          much attention to the assessment on the 
 7          state-owned-land properties because a long 
 8          time ago they weren't really getting much 
 9          money, they were getting PILOTs or something 
10          like that.  So you're denying them the 
11          ability to really look at their property and 
12          find out what it should be assessed at.  I 
13          think that's the bottom line.  To save the 
14          state money, I guess.
15                 Let me just ask you about another one 
16          where -- and this is a big issue, I would 
17          think, particularly in New York City about 
18          the cooperative apartments that are sold and 
19          that you're going to require them to have a 
20          transfer piece of paper come to you so you 
21          know who owns the co-op.  Is that going to be 
22          an easy project for you?
23                 EX. DEP. COMMISSIONER MANION:  We need 
24          to be able to -- as we were doing the relief, 

                                                                   46
 1          we weren't able to identify the value of all 
 2          of the different parts of the co-op.  And so 
 3          that was a challenge that we had, so we -- by 
 4          having them reported and then report all the 
 5          transactions, it follows along with our real 
 6          estate transfer tax.  So it's the same type 
 7          of process that we would get, but we would 
 8          get the information for the co-ops also.  So 
 9          we would have an better idea, an ongoing idea 
10          of the value of the individual co-ops within 
11          the units -- the units within the whole 
12          co-op.
13                 ASSEMBLYWOMAN GALEF:  Right.  Okay.
14                 And the other is the mobile homes, 
15          which really doesn't come under my committee.  
16          But I think you're requesting that they have 
17          a quarterly report about who is living in the 
18          mobile homes for the purpose of STAR?
19                 EX. DEP. COMMISSIONER MANION:  Yeah.  
20          We had a challenge with our STAR credit 
21          checks.  Our STAR credit checks this year, we 
22          were able to get 98 percent out on time.  
23          However, our biggest challenge was in 
24          identifying the owners of the -- in the 

                                                                   47
 1          mobile home parks.  So we actually -- you 
 2          know, we worked with the assessors, because 
 3          that's not information that they regularly 
 4          get.  Some of them do, and some of them 
 5          don't.  And we worked with them in 
 6          identifying who didn't have that information.  
 7          We actually sent some of our field auditors 
 8          out physically to the mobile home parks to 
 9          obtain the information so that we can get the 
10          START credit check out on time.  
11                 So we feel that by having a regular 
12          reporting on this, we'll have a regular 
13          accounting for who should be receiving the 
14          check.
15                 ASSEMBLYWOMAN GALEF:  All right.  
16          Having a quarterly contact -- what happens if 
17          people aren't doing it?  What's the penalty?  
18                 EX. DEP. COMMISSIONER MANION:  It's 
19          with -- just about anything that we do in the 
20          department, if we're not finding compliance, 
21          we have different compliance efforts that we 
22          take.  We can do things through mailing or we 
23          could send the same auditors out to go 
24          physically to the place to try to get some of 

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 1          the information.
 2                 CHAIRWOMAN WEINSTEIN:  Thank you.  
 3                 Senate?
 4                 CHAIRWOMAN YOUNG:  Senator Savino.
 5                 SENATOR SAVINO:  Thank you, Senator 
 6          Young.
 7                 Good morning.  I want to go back to 
 8          the decoupling legislation.  As you know, we 
 9          passed it in the Senate.  We're happy to see 
10          it's going to be included in the 30-day 
11          amendments.  But maybe I'm mistaken about 
12          this, but it's my understanding that when the 
13          state put out the fiscal plan, the additional 
14          revenue that it expected residents to have to 
15          pay due to the loss of the SALT was included.  
16          Will that be adjusted with the 30-day 
17          amendments?  
18                 DOB DIRECTOR MUJICA:  Yeah, we'll have 
19          to adjust the financial plan.  It didn't 
20          affect 2019, but it affected 2020.  So we'll 
21          adjust the financial plan to reflect that, 
22          yes.
23                 SENATOR SAVINO:  Okay.  And on -- I'm 
24          confused about the charitable contribution 

                                                                   49
 1          thing and the prepayment of taxes.  I know at 
 2          the end of 2017 the Governor recommended, if 
 3          you could, prepay your taxes.  And some 
 4          counties participated, and some didn't.
 5                 Do we have a sense of how many people 
 6          did?  Because most people who have a mortgage 
 7          in New York State impound their taxes in 
 8          their mortgage.  So how do you separate your 
 9          property tax payment from your mortgage and 
10          be able to pay it?  So did in fact people do 
11          that?  And will we not anticipate the same 
12          problem with the charitable contribution 
13          issue?  More of a question for the Department 
14          of Tax.  
15                 EX. DEP. COMMISSIONER MANION:  We 
16          don't have a count of how many people did it.  
17          But through anecdotal information -- I know I 
18          spoke to some of the people at the 
19          Association of Counties last week, and they 
20          said that they had people in lines paying 
21          millions of dollars prior to the end of the 
22          year to ensure that they can get the 
23          deduction.  
24                 We did have people that were working 

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 1          with the banks, because a lot of people have 
 2          it in their escrows.  And a lot of the banks 
 3          did work with them in allowing for them to 
 4          pay it and balance out their escrow.  So it's 
 5          something that would have to be coordinated.
 6                 SENATOR SAVINO:  Right.  But you'd 
 7          have to have the resources to actually prepay 
 8          your property taxes.  And in some counties I 
 9          would think that would be cost-prohibitive 
10          for individuals.  It's just interesting, 
11          though, how you have to decouple it from your 
12          mortgage now.
13                 For the Department of Tax and Finance, 
14          I think the budget director said that there's 
15          going to be many changes to try and adjust to 
16          what happened to us in Washington, which 
17          could require a lot of different changes in 
18          tax law and how we adapt it into 
19          hundred-year-old statutes.
20                 Do you have, at the Department of Tax 
21          and Finance, sufficient staff to be able to 
22          make all these changes?  Because when we did 
23          the workforce update, it was pretty clear the 
24          state workforce is remaining flat.  There's a 

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 1          couple of hires to backfill after attrition, 
 2          but we're not seeing a large number of new 
 3          staff at Tax & Finance.  
 4                 Do you believe that you'll be able to 
 5          administer these new tax changes?  
 6                 EX. DEP. COMMISSIONER MANION:  The way 
 7          we've been managing our budget is we've been 
 8          moving a lot towards automation.  So over 90 
 9          percent of our personal income tax filers 
10          file electronically.  Well over 90 percent of 
11          our sales tax filers file electronically.  
12          And when we put the systems up and we work 
13          with our partners, the software partners that 
14          do a lot of that electronic filing, we're 
15          able to fine-tune it so that the returns and 
16          the information and the money comes in 
17          without having to rely on our employees to 
18          work with the taxpayers.
19                 So we've been able to streamline a lot 
20          of that, really enhance our voluntary 
21          compliance.  We have a good partnership with 
22          our IT people that work our systems.  So we 
23          feel that we can develop the systems 
24          necessary for any tax law changes, as we do 

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 1          every year.  There are tax law changes every 
 2          year.  
 3                 We do make decisions.  You know, there 
 4          are decisions of things that are done in that 
 5          time, and we'll continue to do that.
 6                 SENATOR SAVINO:  And finally, back on 
 7          the SALT thing.  So about two-thirds of New 
 8          Yorkers don't itemize their deductions, so 
 9          they really never did take advantage of the 
10          SALT.  So do we have an idea of how many 
11          people are really affected and what the 
12          actual cost will be?
13                 DOB DIRECTOR MUJICA:  Well, the number 
14          we have is 1.7 million New Yorkers pay more 
15          than $10,000 in state and local taxes.  So 
16          that's the universe of individuals that are 
17          affected.  And that 1.7 million are 
18          associated with the $14.3 billion.  And those 
19          are -- it's a portion of the individuals who 
20          itemize.  So you have about a third of 
21          individuals who itemize.  So of that third 
22          that itemize -- it's about 3 million -- 1.7 
23          million of them have taxes in excess of 
24          $10,000.

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 1                 SENATOR SAVINO:  Thank you.
 2                 CHAIRWOMAN WEINSTEIN:  Assemblyman 
 3          Oaks.
 4                 ASSEMBLYMAN OAKS:  Thank you.
 5                 Actually, just to follow up on Senator 
 6          Savino's comments, in trying to identify the 
 7          impact -- and again, I think it's -- for most 
 8          of us, it's just trying to get a handle as we 
 9          go forward.  And thank you for your earlier 
10          comments to Senator Young's questions as 
11          well.
12                 In the SALT deductions, some taxpayers 
13          are subject to the alternative minimum tax.  
14          And so those earners, even though they would 
15          have probably high income tax and local 
16          property taxes, if they hit the AMT, they may 
17          not use those to file because they're going 
18          to pay their base tax anyway.
19                 Do you know if the $14.3 billion takes 
20          into account that group of payers or not?
21                 DOB DIRECTOR MUJICA:  I believe we've 
22          adjusted for that, but I would -- 
23                 DEPUTY COMMISSIONER HILLER:  I believe 
24          we were looking at state and local deductions 

                                                                   54
 1          that are being taken out.
 2                 ASSEMBLYMAN OAKS:  I'm sorry?
 3                 DEPUTY COMMISSIONER HILLER:  I believe 
 4          we looked at state and local deductions that 
 5          are being taken now, so folks who were on the 
 6          alternative minimum tax weren't taking those 
 7          deductions.
 8                 ASSEMBLYMAN OAKS:  Thank you.
 9                 And just for -- I know one of the 
10          things that was highlighted was the 
11          possibility of doing something with possibly 
12          a donation and having a charitable donation.
13                 I know there is some concern how the 
14          IRS might treat that or not.  So are we 
15          anticipating that we will get a ruling back 
16          from them or are we concerned it might be 
17          challenged in court to say whether we could 
18          or couldn't do that?
19                 DOB DIRECTOR MUJICA:  So we know that 
20          the federal government acted in a way that 
21          was hostile to New York.  Or they needed the 
22          money to pay for the broader tax cut.
23                 So we're working within -- and the 
24          attorneys in Tax & Finance can speak to this 

                                                                   55
 1          as well -- we're working within the confines 
 2          of the bill.  As anyone in the private sector 
 3          does, the state is now looking for, Are there 
 4          ways within the current tax law that we can 
 5          use to the advantage of our taxpayers?  State 
 6          and local contributions and the charitable 
 7          deductions, there is a precedent.  There's 
 8          other states presently that have charitable 
 9          deductions for educational purpose, where 
10          they get a tax credit back.  That tax credit 
11          varies from as high as 100 percent and goes 
12          down from there.
13                 So there are precedents there.  Are we 
14          going to wait for a ruling?  I think we have 
15          to do what's in the best interests of New 
16          Yorkers, working within the confines of the 
17          bill, and do what we think and believe fits 
18          within the framework of the bill and is 
19          legal.
20                 Can the IRS challenge some of the 
21          things we do?  Yeah, it's possible that they 
22          do that.  Like I said, the Governor is 
23          looking at three different things.  One is 
24          change the tax code, two is attempt to repeal 

                                                                   56
 1          and replace, and also we're suing.  But we 
 2          think the charitable contributions we looked 
 3          at in other states are doing this as well, so 
 4          we think there is an opportunity there to get 
 5          some of the deductibility back.  And I don't 
 6          know if Amanda has anything else on this.
 7                 DEPUTY COMMISSIONER HILLER:  I guess 
 8          the only thing I would add is that although 
 9          it's certainly possible that the IRS might 
10          make statements that would raise questions 
11          about whether a particular charitable 
12          structure was acceptable or not, at the end 
13          of the day that becomes a fact-based analysis 
14          for an individual taxpayer years from now.  
15          Speaking for the State Tax Department, we 
16          issue advisory opinions all the time, and 
17          taxpayers do not feel bound by them.  And we 
18          find ourselves in court all the time, because 
19          the fact that we said it doesn't make it 
20          true.
21                 ASSEMBLYMAN OAKS:  Just for clarity, 
22          too, we're hoping to do this that will impact 
23          2018 taxes for our state's filings in 2019; 
24          right?

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 1                 DOB DIRECTOR MUJICA:  We're looking 
 2          right now.  So when we propose it, we'll see 
 3          the dates we're seeing.  If we can get 
 4          something done for the 2018 tax year, we will 
 5          try.  If not, then it will have to be for the 
 6          2019 tax year.
 7                 ASSEMBLYMAN OAKS:  One of the things 
 8          is -- my understanding -- and I know we were 
 9          talking about taking a case to the federal 
10          government and challenging in  court.  My 
11          understanding is New York City doesn't -- 
12          can't write off their city income tax on the 
13          state income tax.  By us doing that, are we 
14          subjecting us to the city coming and saying, 
15          well, if you're not telling them they can't, 
16          you know --
17                 DOB DIRECTOR MUJICA:  This is an issue 
18          of state's rights between -- it's an 
19          agreement between the states and the federal 
20          government.  As I mentioned, the very first 
21          time that the federal government attempted to 
22          raise money from the states, the requirement 
23          was that you had to deduct state and local 
24          taxes from your federal taxes, right, 1863.  

                                                                   58
 1                 And then when you created the modern 
 2          federal income tax, the state said only after 
 3          you deduct state and local taxes.  The 
 4          principle was that the states tax their 
 5          citizens first to support local services.  
 6          The federal government can then tax after 
 7          that.  But you can't double tax.  You can't 
 8          tax on top of the tax.  That's what the 
 9          personal income tax at the federal level was 
10          based on going back to its earliest 
11          inception.  
12                 So it doesn't relate to whether or not 
13          what we do with New York City, which is a 
14          creature of the state -- that isn't really 
15          relevant to the legal arguments.  Our 
16          arguments relate to this is a state's right 
17          issue, it relates to our relationship with 
18          the federal government, and it's a foundation 
19          of federal income tax that's been around for, 
20          you know, like I said, over a hundred years.  
21          So we don't think there's an issue there.
22                 ASSEMBLYMAN OAKS:  Thank you.
23                 CHAIRWOMAN YOUNG:  Senator Krueger.
24                 SENATOR KRUEGER:  Good morning.  I 

                                                                   59
 1          think this will be my round one.  I have a 
 2          few rounds, probably.
 3                 Following up on these questions about 
 4          some of the scenarios that you're exploring 
 5          for the 30-day amendments to again, as you 
 6          described, and I completely agree, try to 
 7          assure New Yorkers that under the new federal 
 8          tax scenario, they're not actually losing 
 9          deductibility.  So you've heard questions 
10          about a number of the proposals.  
11                 Am I right that many of these 
12          proposals can in fact be made at the option 
13          of the taxpayer?  So that, for example, the 
14          charitable deduction instead of school or 
15          property taxes as an example.  I think 
16          there's some concern that you're hearing, are 
17          we putting people in a situation that may be 
18          too complicated for them or may not fit them 
19          or may be defined as a new burden for them?  
20          As opposed to what I believe the goal of the 
21          state is, to try to protect their income and 
22          to not have $14 billion more going to the 
23          federal government.
24                 So are there a number of the scenarios 

                                                                   60
 1          that actually can be at taxpayer option 
 2          chosen?
 3                 DOB DIRECTOR MUJICA:  Thank you.
 4                 So yes, there are different options.  
 5          So there are options where some of them could 
 6          be at the employer opt-in level and at the 
 7          taxpayer opt-in level as relates to the 
 8          charitable contribution.  
 9                 So to your point, we don't want to 
10          force anyone, necessarily, into situations.  
11          Where we can create optionability, if you 
12          will, then we will.  So we're looking at 
13          that.  Within the confines of the law, if 
14          we're allowed to do.  That's what we're 
15          trying to do.
16                 So there will be options, and then 
17          there will be some determination as to 
18          whether or not we have to say this is 
19          necessarily mandatory.
20                 But to your point, there is a level of 
21          financial literacy that's necessary.  It gets 
22          complicated, right?  There are individuals 
23          who it would be in their best interest to 
24          itemize, but they choose the standard 

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 1          deduction every year because it's just 
 2          easier.  So we get that.  And that's 
 3          definitely something that we're considering.
 4                 But creating options is something that 
 5          we're very seriously looking at right now.
 6                 SENATOR KRUEGER:  And an additional 
 7          concern that was raised, and I don't think 
 8          anybody asked it yet this morning, if you go 
 9          down the path of reducing pay to people -- so 
10          shifting the -- to payroll taxes, is there a 
11          potential that you're changing the formula of 
12          what their eligibility for pensions would be 
13          after they finish working, and can we make 
14          sure we are not penalizing people's pensions 
15          in the future by trying to help with a 
16          problem now?
17                 DOB DIRECTOR MUJICA:  So the answer is 
18          yes.  So I think that is we would have to 
19          look at those other ancillary impacts and 
20          make changes, potentially, to current state 
21          law to reflect this.  So if there was that 
22          change, or if there was a reduction, then you 
23          would make those changes to make sure that 
24          someone was held harmless.  So we're looking 

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 1          at those changes as well.  
 2                 And I think that's why as you go down 
 3          the list of things that make this 
 4          challenging, we think we're addressing each 
 5          one and will come up with ways to fix it.
 6                 Again, we start from the premise that 
 7          we can't do nothing, so we have to do 
 8          something.  Let's figure out how to do it 
 9          with the fundamental goal of reducing 
10          people's taxes and their burden.
11                 SENATOR KRUEGER:  And on that same 
12          theme, so the question was already raised 
13          about people who get nonwage income -- 
14          interest dividends, et cetera -- the payroll 
15          versus PIT won't -- that won't solve it for 
16          them.  
17                 But my understanding is there's also 
18          several million New Yorkers who are actually 
19          so low-income they don't owe federal taxes.  
20          They wouldn't fall into this, you know, 
21          paying more, paying $14 billion more because 
22          of lack of deductibility, but they might get 
23          caught up in a lowering of wages without a 
24          tax benefit under a couple of the scenarios.

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 1                 Is there a way to assure us that we 
 2          could apply one of these or multiple of these 
 3          payroll options where we aren't actually 
 4          penalizing low-wage workers?
 5                 DOB DIRECTOR MUJICA:  Yes.  So one of 
 6          the options is just creating thresholds, too.  
 7          So we talked about if you leave some version 
 8          of a PIT in place, also then whatever we do 
 9          on the employer side, limiting it to incomes 
10          or salaries of a certain level.  And that 
11          would largely deal with the issue that you 
12          described.  
13                 And for the nonwage earners, we're 
14          looking at that as well.  Again, that goes to 
15          the premise where before, it didn't matter 
16          how you were organized as a business because 
17          your state and local -- you could deduct 
18          state and local taxes as an individual, you 
19          can deduct state and local taxes as a 
20          business or a corporation equally.  
21                 The federal law changes that by saying 
22          you can't deduct state and local taxes as an 
23          individual; however, you can still deduct it 
24          as a business.  So there are business 

                                                                   64
 1          entities that pay taxes through the personal 
 2          income tax side, no longer deductible.  If 
 3          they had organized a different way, perhaps, 
 4          then they would be able to deduct those 
 5          taxes.
 6                 So we're looking at ways for those as 
 7          well to be able have them be taxed instead on 
 8          the business tax side and then they could 
 9          maintain their deductibility.
10                 SENATOR KRUEGER:   And I'm at zero, 
11          but just a quick follow-up on that.  And 
12          we're also looking at ensuring that people's 
13          Earned Income Tax Credit, if eligible, isn't 
14          reduced in some way when we explore these 
15          options; right?
16                 DOB DIRECTOR MUJICA:  That's right.
17                 SENATOR KRUEGER:  Thank you.  I'll 
18          come back.  Thank you.
19                 CHAIRWOMAN WEINSTEIN:  Thank you.  
20                 A quick question about the -- one of 
21          the -- proposed deferral of certain tax 
22          credits.  We had this discussion a little bit 
23          during the housing hearing.  What would be 
24          the impact of the deferral of certain key 

                                                                   65
 1          credits such as the low-income housing credit 
 2          on current and future affordable housing 
 3          development?
 4                 DEPUTY COMMISSIONER HILLER:  The 
 5          budget proposes to defer those credits, but 
 6          the proposal includes providing for the first 
 7          2 million of those credits to flow through 
 8          immediately.  So we're building on a model 
 9          that the state undertook in 2010.  So we did 
10          the same credit deferral in 2010.  The 
11          credits become banked, they are already 
12          accrued for the taxpayer, just the payout of 
13          those is deferred.  
14                 So we believe that the taxpayers can 
15          book those credits for their future years.  
16                 CHAIRWOMAN WEINSTEIN:  Thank you.
17                 Senate?  
18                 CHAIRWOMAN YOUNG:  Thank you.
19                 I have a lot of follow-up questions.  
20          Oh, I'm sorry, we'll let Jim Tedisco, Senator 
21          Tedisco go first.
22                 SENATOR TEDISCO:  Thank you for your 
23          service to our state and for being here to 
24          testify and take some questions.

                                                                   66
 1                 So yesterday, like everybody in this 
 2          room and in the state, I was waiting for the 
 3          snow in the morning.  I got up, it was very 
 4          quiet.  Got out of bed -- unfortunately, my 
 5          wife heard me.  If she didn't say it once, 
 6          she said it a dozen times:  When are you 
 7          going to go out in the driveway and clear it 
 8          out, get the snowblower out?  I said -- and I 
 9          had a good answer -- duplication of services.  
10          The snow hasn't stopped yet.  Dodged a 
11          bullet.  
12                 Got to work, she must have called me 
13          three or four times.  Duplication of 
14          services, got to wait till it stops.  
15          Unfortunately, I got home about 6:30, 
16          7 o'clock, and of course she said, When are 
17          you going to go out?  When the snow stops.  
18          It stopped in about a half-hour.  At 7:30 I 
19          put my boots on, went out there, took the 
20          snowblower out.  About a half hour into it I 
21          was really thinking, wouldn't it be great to 
22          take a vacation to sunny Florida or to one of 
23          those sunny areas?  But I also thought to 
24          myself, I never want to leave the State of 

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 1          New York because I love it like you do, like 
 2          most of people in this room.  It's the Empire 
 3          State.  
 4                 I think my question in relationship to 
 5          this and some of the things you've talked 
 6          about of our situation in New York State and 
 7          our taxes -- middle-class tax cut, great, 
 8          $4 billion.  We could soon be becoming the 
 9          empty state, not the Empire State.  And I 
10          guess my question is over a 10-year period 
11          we've lost a million individuals, migration 
12          out of the State of New York; 190,000 last 
13          year.  Four or five states have that 
14          situation, of the 50 states in the nation.
15                 If things are so good with our tax 
16          structure and it doesn't relate to the 
17          situation related to taxes and mandates and 
18          regulations, why are they leaving?  Why are 
19          they leaving?
20                 DOB DIRECTOR MUJICA:  So we've said 
21          this before and the Governor has highlighted 
22          this before.  New York State has some of the 
23          highest property taxes in the country.  
24          Right?  We know that.  It's been long, many 

                                                                   68
 1          years in the making.  
 2                 One of the first things he did when he 
 3          came into office, working with the 
 4          Legislature, was enacted the property tax 
 5          cap.  And that property tax cap has, over the 
 6          last seven years, reduced the growth in our 
 7          taxes to 2 percent a year or less, while the 
 8          rest of the nation's average growth is about 
 9          3.7 percent per year.
10                 So we did that.  We reduced income 
11          taxes for -- on the middle-class income tax 
12          cut, which is actually larger, if you look at 
13          it as a percentage of taxes that we 
14          collect and -- taxes that we collect compared 
15          to the federal government is actually bigger 
16          than what the federal government is doing for 
17          New Yorkers, as a -- in comparison.  He cut 
18          middle-class taxes, cut corporate taxes, 
19          eliminated taxes on manufacturers.  Right?  
20          So all of those things we're doing, and we've 
21          done them.
22                 How we got to a high-tax state over 
23          many, many years when inflation was growing 
24          by 4 percent, you had state spending growing 

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 1          in excess of 5 percent per year annually.  
 2          Since the Governor's been in office, we've 
 3          been increasing spending at 2 percent a year 
 4          for the last seven years.  So actually, over 
 5          the seven years, it's actually like 
 6          1.4 percent.  
 7                 Why do you have high taxes?  Because 
 8          you have high spending.  When you control 
 9          spending, you can then lower taxes.  That's 
10          the promise he made when he came in, and 
11          that's exactly what he's done.  Control 
12          spending, then you have additional revenues.  
13          What do you do with those additional 
14          revenues?  You're lowering taxes.  Why do you 
15          want to lower taxes?  Because of your point:  
16          People may be impacted by high taxes.  
17                 So the Legislature, working with the 
18          Governor, over the last seven years have done 
19          all of these things to make it better and 
20          continue to control spending.  The federal 
21          government comes and says, Oh, we think 
22          you're a high-tax state, so we're going to 
23          raise taxes on you even further.  Right?  
24          Under the principle that -- they say is that 

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 1          New York is -- we're subsidizing New York.  
 2          It's false, right?  
 3                 SENATOR TEDISCO:  I'm going to have to 
 4          interrupt you, because I've only got a minute 
 5          left.
 6                 DOB DIRECTOR MUJICA:  Yeah.
 7                 SENATOR TEDISCO:  But that tax bill 
 8          has gone into effect --
 9                 DOB DIRECTOR MUJICA:  It's a loaded 
10          question, right, because --
11                 SENATOR TEDISCO:  Well, you're loaded 
12          for the rest of my time.  Can I just ask 
13          another question?  Because you're 
14          filibustering just a little bit.  I 
15          appreciate your answer --
16                 DOB DIRECTOR MUJICA:  But why are they 
17          leaving?  They're leaving because there were 
18          high taxes for a long time?  Perhaps.  But 
19          we've lowered those taxes.  The federal 
20          government came in and just raised the taxes 
21          on New Yorkers.  So that's the answer.  And 
22          the answer is if we have high taxes, don't 
23          raise the taxes on New Yorkers.
24                 SENATOR TEDISCO:  But they haven't 

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 1          raised the taxes yet until next year.  We 
 2          won't feel that till next year.  We lost 
 3          close to 200,000 in the past year.
 4                 Very quickly, because my time is 
 5          limited here, 45 or 44 other states aren't 
 6          affected by this, apparently, because they're 
 7          not a part of that lawsuit.  What's the 
 8          chance that we're going to win a lawsuit when 
 9          44 or 45 other states don't have the high 
10          taxes we have, don't have the exemptions or 
11          need the exemptions because they don't have 
12          the high taxes?  
13                 DOB DIRECTOR MUJICA:  Well, I think 
14          other states don't sue because they didn't 
15          get hurt.  So if you're targeting --
16                 SENATOR TEDISCO:  Right.  But how are 
17          you going to win when 80 percent of the 
18          nation, or 90 percent, isn't impacted in the 
19          way you've said it?
20                 DOB DIRECTOR MUJICA:  Well, I think 
21          most lawsuits don't have -- every single 
22          person are not on them, right?  You only need 
23          one aggrieved taxpayer, a couple of aggrieved 
24          parties to make the case and then win the 

                                                                   72
 1          lawsuit, which affects everyone.  So you 
 2          don't need everyone to join into the lawsuit.  
 3          And frankly, people who aren't aggrieved are 
 4          not suing.  
 5                 Again, we said New York is targeted, 
 6          12 other states are targeted.  New York gives 
 7          the federal government more money than anyone 
 8          else in the country, and the federal 
 9          government wants to take more from New York, 
10          and we want to stop that.
11                 SENATOR TEDISCO:  Thank you.
12                 CHAIRWOMAN WEINSTEIN:  Thank you.  
13                 Mr. Oaks.
14                 ASSEMBLYMAN OAKS:  Yes, thank you.
15                 Just following up a little bit where 
16          we were talking before, have we done any 
17          study, or have you, related to regional 
18          impact, regions of the state?  You know, 
19          you've done it by saying "in total."  But 
20          just the impact of the federal tax law, 
21          either positively or negatively.  
22                 DOB DIRECTOR MUJICA:  I think we know 
23          where there's higher income taxes or there's 
24          higher property taxes, they're impacted less 

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 1          {sic} than other parts of the state.  Right?  
 2          So we know that.
 3                 The higher the income taxes, the 
 4          higher the home values, you're impacted more.  
 5          So we know that.  And you know, you know, if 
 6          you look at the congressional vote, right, 
 7          where it came from.  So you can see certain 
 8          regions are impacted more than others.  So we 
 9          know that.
10                 But you have to look at the state in 
11          total.  Because again, you have the vast 
12          majority of the personal income tax revenue 
13          comes from New York City, Nassau, Suffolk, 
14          Westchester and the Hudson Valley.  And to 
15          Senator Tedisco's point, if those people 
16          leave the state, we lose money.  And we need 
17          that money to fund education statewide, 
18          Medicaid statewide.  
19                 So that's the concern.  The concern is 
20          you can't say, well, it didn't affect one 
21          part of the state so it shouldn't matter.  It 
22          affects the state because the revenues come 
23          from the entire state.  And if one part of 
24          the state is hurt and it impacts -- their 

                                                                   74
 1          home values go down 10 percent, their 
 2          property taxes go up, their income taxes go 
 3          up, and we're less competitive to the other 
 4          states -- some people cite Florida -- the 
 5          federal law made us that much less 
 6          competitive than those other states.  
 7                 So if it impacts any part of the 
 8          state, it's going to impact us.  And if you 
 9          impact the part of the state that produces a 
10          lot of the revenue, then it's really going to 
11          impact the whole state.  So I think it's not 
12          just a matter of how it impacts that 
13          individual on their taxes, but it's how it 
14          impacts potential state revenues, and that's 
15          where we're really at risk.
16                 ASSEMBLYMAN OAKS:  One of the things 
17          I'd like to jump to is dealing with issues 
18          around the opioid crisis in the state.  And 
19          certainly I agree with efforts to try to 
20          respond to that.  
21                 Of course one of the proposals in the 
22          budget is to raise revenues through a tax 
23          that would be created on that.  And one of 
24          the things I did see, that 12 states tried to 

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 1          do that last year, but it's pretty complex.  
 2          And looking at the overall structure of how 
 3          drugs move through the system and then who's 
 4          using them.  And I guess I have a couple of 
 5          questions.  None of those other states 
 6          actually ended up doing it.  
 7                 But we have -- it also falls to we're 
 8          taxing treatment by doing that, because 
 9          people who are accessing some of those 
10          treatment drugs, those drugs are also being 
11          taxed in the midst of this.
12                 So I guess just some questions looking 
13          at -- and again, it's a complex way -- why 
14          the other states didn't end up doing it, it 
15          got, you know, very difficult and maybe some 
16          unintended consequences came out of it.
17                 So I guess just questions on why would 
18          it apply to people or the drugs that are used 
19          for people in treatment?
20                 DEPUTY COMMISSIONER HILLER:  The 
21          opioid surcharge proposal would be applying a 
22          surcharge on the first sale into New York 
23          State of an opioid.  The funds being 
24          generated by that surcharge are being 

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 1          dedicated to fund opioid treatment programs 
 2          that are paying for those drugs, and so those 
 3          programs will be whole.  It's the ultimate 
 4          goal here to impose a surcharge that will 
 5          flow to the manufacturers of opioids, and 
 6          where at the end stream it's being used for 
 7          drug treatment programs, the surcharge is 
 8          being dedicated to support exactly those 
 9          programs.
10                 ASSEMBLYMAN OAKS:  So, you know -- and 
11          I guess I understand that some -- but, you 
12          know, hospice, because they're end users, 
13          they're paying for it for treatment.  
14                 You're suggesting, though, those 
15          dollars -- I mean, in hospice care it 
16          wouldn't be for -- you know, they wouldn't be 
17          getting money for treatment or, you know, for 
18          other uses -- cancer treatment and others 
19          where there's legitimate postsurgical pain 
20          and whatever, where I think the prescription 
21          of those is legitimate.  Where we've gotten 
22          into problems is certainly in overuse.
23                 But so you were just talking about the 
24          structure.  So who is the target?  Because -- 

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 1          is it the manufacturer?  My understanding was 
 2          the tax would be more -- in most cases, the 
 3          provider would be paying the tax.
 4                 DEPUTY COMMISSIONER HILLER:  The tax 
 5          is structured as a tax on the first sale into 
 6          New York State.  That's the first point where 
 7          our state tax code can reach the chain of 
 8          commerce for a drug.  So if the manufacturer 
 9          is selling directly into the state, the 
10          manufacturer would be paying the surcharge.  
11          If a manufacturer sold to a distributor who's 
12          selling into the state, that distributor 
13          would be paying the surcharge.
14                 That's as high in the chain of 
15          commerce as the state can reach.  But the 
16          goal is to reach as high into the chain of 
17          commerce as we can.
18                 CHAIRWOMAN YOUNG:  Thank you.  
19                 Quite a few follow-up questions.  
20                 First of all, to Director Mujica, you 
21          said there are 3 million taxpayers in the 
22          state who pay property taxes, and there are 
23          1.7 above the $10,000 per year line, they're 
24          paying more than $10,000 a year in property 

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 1          taxes.  So the question is, does that mean 
 2          that 1.3 million taxpayers are getting a tax 
 3          break?
 4                 DOB DIRECTOR MUJICA:  Let me clarify.  
 5          It's 3.3 million taxpayers who presently 
 6          itemize.  1.7 million of those pay state and 
 7          local taxes in excess of 10,000.
 8                 CHAIRWOMAN YOUNG:  Right.
 9                 DOB DIRECTOR MUJICA:  So some of those 
10          will maintain state and local tax 
11          deductibility to a certain degree.  There's a 
12          lot of other factors, but presumably they 
13          have below $10,000 they can still claim 
14          deductibility.  So some of those, right, are 
15          still being able to deduct their taxes and 
16          presumably the combination of both is below 
17          the $10,000 threshold.  But we have 1.7 
18          million New Yorkers whose state and local 
19          sales taxes are above the $10,000 threshold, 
20          and that's the 14 --
21                 CHAIRWOMAN YOUNG:  So the remainder 
22          from the 1.7 theoretically would be getting a 
23          tax break from the federal tax reform.
24                 DOB DIRECTOR MUJICA:  There are other 

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 1          factors, right, so I can't speak to whether 
 2          or not they're going to get -- and what that 
 3          dollar value is.  It could be dollar one, 
 4          dollar two.  
 5                 But the bigger metric that we were 
 6          just using to come up with that number is 
 7          just state and local taxes.  So presumably 
 8          some of them fall under the $10,000, so 
 9          they're still able to maintain state and 
10          local tax deductibility -- at least they're 
11          maintaining their state and local tax 
12          deductibility.  But the remainder don't.
13                 CHAIRWOMAN YOUNG:  So we're on a tight 
14          time schedule now, and the 30-day amendments 
15          are set to be due on February 15th.  And 
16          you're talking about totally restructuring 
17          our tax system in New York, and it sounds 
18          quite complicated, from what you said; 
19          somewhat confusing, potentially.  And will 
20          all of these proposed changes be included in 
21          the 30-day amendments?  Because I would hate 
22          to get up close to the budget deadline and 
23          not have details on what the Governor is 
24          proposing and then have to go through all 

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 1          these complicated changes to the tax law and 
 2          not have enough time to fully vet those 
 3          changes.
 4                 DOB DIRECTOR MUJICA:  Yeah, I think 
 5          the Governor understands that timeline as 
 6          well, and that's why we've been working hard, 
 7          the Tax Department has been working harder 
 8          trying to draft -- have these pieces drafted 
 9          so we can give you detailed language with the 
10          30-day amendments.  Because we recognize that 
11          it is -- you will need time to deliberate, we 
12          will need time to work through the issues.  
13                 So the anticipation is that you will 
14          have language for the vast majority of these, 
15          if not all, on the 30 days -- for the 
16          30-days.
17                 CHAIRWOMAN YOUNG:  Thank you, Director 
18          Mujica.  
19                 Now I would like to follow up on a 
20          line of questioning that Assemblyman Oaks 
21          asked about, and it's on the first sale of 
22          opioid drugs in the state.  And he was 
23          getting to this.  And I know that there's 
24          language included in the Governor's proposal 

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 1          that says it won't be passed along to 
 2          consumers.  But how can you ensure that?  
 3                 If you're charging more taxes, a new 
 4          surcharge on the first sale of opioid drugs 
 5          in the state, isn't it very likely that a 
 6          drug manufacturer would pass that along to 
 7          consumers?
 8                 DEPUTY COMMISSIONER HILLER:  Yeah, I 
 9          think that there are competitive factors that 
10          drive drug pricing now.  And to the extent 
11          that we're looking at imposing a surcharge 
12          fairly high in the chain of commerce, we're 
13          certainly -- you know, certainly the 
14          intention of the bill is to make the cost of 
15          sales into New York a higher cost for those 
16          opioid manufacturers.
17                 CHAIRWOMAN YOUNG:  Right.  But then 
18          who pays for that?  Just the manufacturer?  
19          If it costs more to manufacture a drug, 
20          usually it's passed along to the consumers.  
21          Am I correct?
22                 DEPUTY COMMISSIONER HILLER:  I think 
23          in the case of opioids that, you know, as 
24          long as we can provide for end-uses that are 

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 1          important such as drug treatment, the notion 
 2          that we're increasing the cost of opioids is 
 3          a public policy goal here, I think.
 4                 CHAIRWOMAN YOUNG:  Yeah, but -- so I 
 5          have a lot of follow-up on that.  Because as 
 6          you know, in the Senate we have been very, 
 7          very aggressive in passing a lot of policy to 
 8          deal with the opioid and heroin crisis.  We 
 9          pushed last year for $227 million to be 
10          included in the budget.  That was above what 
11          the Governor originally proposed by a lot of 
12          money.  And there's concern about the costs 
13          heading downstream on these, such as 
14          pharmacies, for example.  And I had a hospice 
15          come to me yesterday, just this week, and 
16          they are scared to death of this change 
17          because obviously, all of a sudden, with 
18          these high taxes and this surcharge, there's 
19          going to be a disincentive for these opioid 
20          manufacturers to actually sell in New York.  
21                 Obviously, we've had a crisis, people 
22          have abused opioids, and that's created a lot 
23          of problems that we face now.  But if it 
24          creates a shortage, how does that affect 

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 1          entities such as hospice that need to have 
 2          those opioid drugs to make sure that people 
 3          are comfortable as they are going through the 
 4          end of life and suffering?  
 5                 So how can you ensure that 
 6          manufacturers might say, Okay, New York, 
 7          you're going to hit us with this huge 
 8          surcharge, we're just not going to sell our 
 9          drugs in New York State?
10                 DEPUTY COMMISSIONER HILLER:  Number 
11          one, I think the market for opioids in 
12          New York is a strong one, and I don't believe 
13          that any of our health policy experts 
14          anticipate that outcome.
15                 I think the goal of this proposal is 
16          to impose a modest surcharge that will fund 
17          critical opioid treatment programs, and that 
18          the cost of those treatment programs should 
19          be borne, to the extent that we can achieve 
20          it, on the manufacturers of opioids.
21                 CHAIRWOMAN YOUNG:  I still have some 
22          deep concerns about this particular proposal 
23          and a lot of the tax increases.  As you know, 
24          our conference has been working very hard to 

                                                                   84
 1          make New York more affordable, not less 
 2          affordable.
 3                 Just switching gears, I know you're 
 4          actually talking about the Brownfield Cleanup 
 5          Program as having a deferment, and also the 
 6          Low Income Housing Tax Credit.  So I just 
 7          want to go over a little bit of history here.
 8                 As you know, in the 2016 enacted 
 9          budget, following more than two years of 
10          negotiations, the state made a significant 
11          commitment to clean up the environment, to 
12          provide a mechanism to create affordable 
13          housing by extending and amending the 
14          Brownfield Cleanup Program.  Following two 
15          more years of negotiations, the state again 
16          made its commitment to affordable housing 
17          clear by including $2.5 billion toward a 
18          multiyear plan to provide 100,000 units of 
19          affordable housing.  
20                 However, this year's Executive Budget 
21          proposal threatens all of those advances and 
22          future development with language to delay 
23          payment of Brownfield and state Low Income 
24          Housing Tax Credits.  You're talking about 

                                                                   85
 1          some actions that were taken in 2010.  I 
 2          would like to remind you that 2009 and 2010 
 3          were very bad years for the state, and a lot 
 4          of people in the communities across the 
 5          state, people investing in our state felt 
 6          that the state actually broke its promises.
 7                 So what is the rationale behind the 
 8          deferment, number one?  And for example, on 
 9          the Brownfield Cleanup Program -- and I'll be 
10          asking this at the EnCon table too.  But how 
11          many projects will be affected by this 
12          deferment?  Will it stop these projects in 
13          their tracks?  Because all of a sudden you're 
14          taking away something that people were 
15          counting on to clean up these contaminated 
16          sites.  
17                 DEPUTY COMMISSIONER HILLER:  The 
18          proposed business tax credit deferment in the 
19          Executive Budget does not change the 
20          entitlement to credits.  Taxpayers will 
21          continue to accrue credits as they are 
22          accruing them now.  It's changing how the 
23          credits get paid out over time.  But the 
24          entitlement to that credit is unchanged under 

                                                                   86
 1          this proposal.
 2                 CHAIRWOMAN YOUNG:  Right.  But it's 
 3          deferring, it's delaying it.  Do you think 
 4          people can afford to invest in these projects 
 5          if it's deferred down the road?  They're 
 6          counting on that investment now, that 
 7          commitment now from the state.
 8                 DEPUTY COMMISSIONER HILLER:  I think 
 9          the proposal contemplates that the first 
10          $2 million of each credit will flow in order 
11          to, you know, be that -- that will cover most 
12          tax credit claims.  And the -- because the 
13          entitlement to that credit is defined under 
14          current law, taxpayers can book that credit 
15          that they have earned on their books for 
16          future years.
17                 CHAIRWOMAN YOUNG:  As I asked, could 
18          you give me the number of projects that would 
19          be impacted by this proposal?
20                 DEPUTY COMMISSIONER HILLER:  I don't 
21          have that number in front of me.  We can 
22          certainly try to get that.
23                 CHAIRWOMAN YOUNG:  Just following up 
24          on the Low Income Housing Tax Credit, I have 

                                                                   87
 1          a particular interest in this, there's been a 
 2          disruption in federal pricing, the federal -- 
 3          there's been a disruption in pricing federal 
 4          low income housing tax credits due to the 
 5          comprehensive federal tax reform.  And you're 
 6          aware of that.  The industry is reporting 
 7          that tax reform may devalue the credit since 
 8          it is tied to the corporate tax rate.  The 
 9          lower the tax burden, the less credits will 
10          be worth to investors.  And that's of deep 
11          concern.  And I've had a bill that I've 
12          carried in the past that would bifurcate the 
13          federal from the state's low income housing 
14          tax credits.  
15                 The state low income tax credit could 
16          be a resource for filling financial gaps with 
17          the federal credit.  However, the Governor's 
18          budget proposes delaying the state credit for 
19          two years, as we discussed.  This means 
20          investors would not be able to remit the 
21          credit right away, which could have a 
22          detrimental effect on its value.  A similar 
23          measure passed in 2009-2010, as you pointed 
24          out, and had a reverberating effect on the 

                                                                   88
 1          program.  Partnerships were broken that 
 2          caused financial losses for investors and 
 3          resulted in a lack of faith in the program, 
 4          which is the wrong way to go.
 5                 We are now hearing that many investors 
 6          now price risk into their operating 
 7          agreements.  Stipulations provide that if the 
 8          credit is delayed, the developer will pay 10 
 9          cents on every dollar, which is 
10          extraordinarily problematic.  This can create 
11          an equity hole for the developer when they 
12          move from construction financing to permanent 
13          financing.  The developer must make up those 
14          gaps, which can have an impact on housing 
15          affordability.  And the Legislature and the 
16          Governor have prioritized housing 
17          affordability.
18                 So can you provide a list of state 
19          low-income-housing tax projects that are in 
20          the pipeline so we know how many of these 
21          projects are going to be so negatively 
22          impacted?
23                 DEPUTY COMMISSIONER HILLER:  Again, 
24          the Tax Department doesn't have that list.  

                                                                   89
 1          We can certainly try to get one.
 2                 CHAIRWOMAN YOUNG:  If you could get 
 3          it, that would be very helpful.
 4                 Just switching gears, the Executive 
 5          Budget contains a proposal to close the 
 6          so-called carried interest loophole by adding 
 7          17 percent, called a fairness fee, to certain 
 8          compensation earned by hedge fund managers.  
 9          The proposal would only go into effect in the 
10          event that surrounding states pass 
11          substantially similar legislation.  Wouldn't 
12          substantially similar mean that our neighbors 
13          could pass similar legislation with a much 
14          lower fairness fee and draw businesses away 
15          from New York?
16                 DEPUTY COMMISSIONER HILLER:  The 
17          proposal would take effect here if our 
18          neighboring states enacted substantially 
19          similar legislation.  The proposal doesn't 
20          call for identical legislation because our 
21          neighboring state have different structures 
22          to their tax code, so it can't just be an 
23          exact duplicate.  
24                 But I believe that the proposal 

                                                                   90
 1          contemplates a similar level of a fairness 
 2          fee.  There's nothing to stop our neighboring 
 3          states from enacting taxes of their own at 
 4          whatever levels they choose.  But our goal 
 5          here is to address the carried interest 
 6          loophole but make sure that we're advancing 
 7          it in a way that doesn't reduce our 
 8          competitiveness as compared to our neighbors, 
 9          by ensuring that we work together with our 
10          neighbors to address this issue.
11                 CHAIRWOMAN YOUNG:  Where are we at 
12          with dealing with other states?
13                 DEPUTY COMMISSIONER HILLER:  I believe 
14          there are conversations happening with other 
15          states.  I don't know that this individual 
16          proposal is moving forward or not moving 
17          forward, because frankly those conversations 
18          are above my pay grade.
19                 CHAIRWOMAN YOUNG:  Switching gears 
20          again, the Executive Budget proposes a 
21          $25 million retroactive tax increase on two 
22          upstate gaming facilities.  So the question 
23          is, how can the state retroactively impose a 
24          tax increase of this magnitude on two upstate 

                                                                   91
 1          facilities just a couple of years after 
 2          giving them tax parity with commercial 
 3          casinos that they are forced to compete 
 4          against?
 5                 DEPUTY COMMISSIONER HILLER:  I would 
 6          have to say that that's outside the Tax 
 7          Department's expertise.  Those taxes are 
 8          managed by the Gaming Commission.
 9                 CHAIRWOMAN YOUNG:  Okay.  So we'll 
10          have to follow up on that.
11                 And finally I wanted to ask about -- 
12          there's a proposal regarding -- so this 
13          year's Executive Budget includes to extend 
14          the sales tax to online marketplace providers 
15          such as Amazon and Etsy.  The Supreme Court 
16          recently agreed to hear the case South Dakota 
17          vs. Wayfair, which will address this issue on 
18          the federal level.
19                 So I think that the arguments are 
20          being heard in April of 2018, the court is 
21          expected to rule in June of 2018.  Wouldn't 
22          it make more sense to wait and have this 
23          outcome of the case become apparent before 
24          the state takes action?

                                                                   92
 1                 DEPUTY COMMISSIONER HILLER:  I mean, 
 2          we're certainly watching that case closely.  
 3          That case relates to whether the standard for 
 4          nexus, at what point a state can impose a 
 5          sales tax collection obligation on a business 
 6          that's not necessarily in New York State.  
 7          There are limitations on when we can and 
 8          can't impose a sales tax obligation.  And 
 9          we're watching closely that Supreme Court 
10          case that has the potential to change the 
11          standard and allow states to reach businesses 
12          that are outside their borders more easily.
13                 But the proposal in the Executive 
14          Budget is a little different.  The proposal 
15          is looking to the marketplaces that are 
16          facilitating sales.  We're looking to 
17          marketplaces that meet the current nexus 
18          standards already, but we're only looking to 
19          impose collection obligations on marketplaces 
20          that have nexus to New York State.  
21                 But the idea is to impose the 
22          collection responsibility where the money is 
23          handled.  When I go to Amazon and I purchase 
24          from Amazon, Amazon is collecting sales tax 

                                                                   93
 1          and remitting it to New York State.  But in 
 2          the fine print on my screen, it may that be 
 3          the sale I feel like I'm purchasing from 
 4          Amazon is really being fulfilled by some 
 5          third-party vendor.  And Amazon may be 
 6          collecting tax on that sale and remitting it 
 7          to the third-party vendor, who then we hope 
 8          would send it to New York State.
 9                 But the idea of the marketplace 
10          proposal is to require the marketplace that 
11          is facilitating the sale, that is making the 
12          sale possible, that is taking in the money, 
13          that is processing the transaction, be the 
14          entity that is required to collect and remit 
15          the sales tax.  Because that's where the 
16          functionality for that responsibility lies.
17                 CHAIRWOMAN YOUNG:  Right.  But this 
18          Supreme Court decision may have an impact on 
19          anything that the state does.  So the 
20          question is, why not wait?  Because we're 
21          looking to reverse a '92 decision, Quill vs. 
22          North Dakota, and -- which that basically 
23          says that the -- you know, it deals with 
24          purchases over the internet, and I know South 

                                                                   94
 1          Dakota is arguing that the 1992 ban on online 
 2          tax collection is obsolete.  I know all that.
 3                 But why not wait just a few months and 
 4          see what the Supreme Court does?  Because 
 5          that could impact what we're doing here in 
 6          the state.
 7                 DEPUTY COMMISSIONER HILLER:  Yeah, 
 8          again, you know, we're watching that case 
 9          very closely because it creates the potential 
10          for us to impose sales tax collection 
11          responsibilities on out-of-state vendors that 
12          are doing substantial business in New York 
13          State and that are competing against New York 
14          brick-and-mortar businesses.
15                 Even if that Supreme Court case goes 
16          in favor of states' ability to reach 
17          out-of-state vendors, we still think that the 
18          marketplace proposal is the right proposal 
19          for managing the collection of sales tax from 
20          these large online marketplaces, because 
21          that's where the money is collected.  It's 
22          Amazon that is taking my credit card, that is 
23          billing my credit card for the sale.  It's 
24          not the third-party vendor whose goods are in 

                                                                   95
 1          an Amazon warehouse waiting for Amazon for 
 2          ship them to me.
 3                 And because the marketplace is the one 
 4          that's processing the money, we believe that 
 5          that is the right place to impose the 
 6          collection responsibility, regardless of 
 7          whether nexus expands to other vendors.  We 
 8          still think that the vendors who have nexus 
 9          to New York State should be the ones who have 
10          that responsibility.
11                 And with that comes some relief for 
12          the small vendors who may be selling goods on 
13          that marketplace.  Right now those 
14          vendors are liable for the sales tax that 
15          they may or may not have been collecting or 
16          remitting.  And when we come across them in 
17          our audits, they have to come up with the 
18          money and pay us the sales tax that they 
19          should have been collecting.  When the 
20          marketplace is held responsible for that 
21          collection and remission responsibility, they 
22          can now relieve those small vendors of the 
23          obligation to do that themselves.
24                 CHAIRWOMAN YOUNG:  Thank you. 

                                                                   96
 1                 I just want to finish up by saying 
 2          that there are a lot of revenue actions in 
 3          the Governor's budget that our conference, 
 4          the Senate Republican Conference, is very 
 5          concerned about.  And as Director Mujica 
 6          pointed out, we have worked together very 
 7          successfully over the past few years to 
 8          reduce the tax burden on New Yorkers.  And 
 9          these revenue actions are actually tax and 
10          fee increases.  
11                 So it does raise a lot of concerns in 
12          our conference, and I just wanted to make 
13          that statement.
14                 Thank you.
15                 CHAIRWOMAN WEINSTEIN:  Mr. Oaks has a 
16          follow-up question.
17                 ASSEMBLYMAN OAKS:  Yeah, actually 
18          Senator Young, I was thinking, might have 
19          covered this one too because she covered most 
20          of the tax implications.  But one of them 
21          that she didn't mention that I'd like to just 
22          ask a quick question on, the health insurers' 
23          14 percent surcharge that the Governor 
24          discussed and used as his justification of 

                                                                   97
 1          saying, you know, they're going to see a 
 2          windfall from the federal changes, and so 
 3          basically we're going to do the surcharge to 
 4          take those dollars away.
 5                 I'm just wondering if in that 
 6          calculation there was used determination of 
 7          just how the feds are going to treat them in 
 8          their deductions and what they do as income 
 9          -- you know, how they treat that -- so that 
10          it may make that different than what -- you 
11          know, simply taking a percentage calculation 
12          to do that.
13                 So just --
14                 DEPUTY COMMISSIONER HILLER:  I mean, I 
15          think the issue here is that the rates that 
16          these health insurers are allowed to charge 
17          were set based on the prior tax code.  And so 
18          the rate reduction that they're receiving as 
19          a result of the federal tax changes is on top 
20          of the tax allowance that was built into 
21          their rate schedule for the upcoming year.  
22          And so the goal here is to recapture that 
23          gain, because that's on top of the 
24          rate-setting process that has already taken 

                                                                   98
 1          place this year, based on the tax code as it 
 2          existed before December.
 3                 ASSEMBLYMAN OAKS:  The issue I guess 
 4          just is as we go forward and look at that, we 
 5          just need to make sure we're calculating in a 
 6          way that's appropriate with trying to meet 
 7          the goal that you are.
 8                 DEPUTY COMMISSIONER HILLER:  Of 
 9          course.
10                 CHAIRWOMAN YOUNG:  Senator Krueger.
11                 SENATOR KRUEGER:  Thank you.
12                 So actually following up where Senator 
13          Young I think ended -- it's interesting, she 
14          and I have questions about many of the same 
15          things, but we land in different place on the 
16          answers.  So following up -- or our 
17          conferences do.
18                 CHAIRWOMAN YOUNG:  That's shocking.
19                 SENATOR KRUEGER:  Shocking.
20                 (Laughter.)
21                 SENATOR KRUEGER:  So I am actually a 
22          big supporter of the internet marketplace 
23          tax.  And I think what's important -- and 
24          Ms. Hiller started to address it -- is for 

                                                                   99
 1          us, in the same way as in the discussion 
 2          about what the feds just did in tax law and 
 3          how we need to adjust perhaps the way we've 
 4          been thinking about taxes for a hundred years 
 5          because of what the feds did, when it comes 
 6          to the internet marketplace -- and I would 
 7          argue that the world we're living in, we need 
 8          to completely reevaluate how we think about 
 9          taxes and policy when it comes to internet 
10          business.  
11                 So in fact when people talk about 
12          crime today, they're talking about cyber 
13          crime, a completely different set of issues 
14          than police and DAs are used to.  And when 
15          you're talking about business models today, 
16          and how to regulate and tax them, you have to 
17          ask the questions what makes sense in a world 
18          where everything is on the internet.
19                 So the fact is -- and thank you for 
20          explaining it the way I understand it -- 
21          right now there's a competition going on 
22          between bricks-and-mortar stores who are in 
23          our communities and hire people from our 
24          neighborhoods and pay all kinds of local 

                                                                   100
 1          taxes and sales tax when you go and shop 
 2          somewhere versus the world of internet 
 3          shopping, which I do and more and more of the 
 4          population does, but it actually reduces our 
 5          taxes to our localities and our counties and 
 6          our state and creates an uneven playing 
 7          field.  
 8                 And that what is so important to 
 9          understand with the internet tax proposal -- 
10          and again, we do need to see where the 
11          Supreme Court goes or doesn't go to in fact 
12          expand and address this issue in a larger 
13          level.  But it's not a new tax on people.  
14          It's a tax that sometimes is being collected, 
15          it's just not being paid.
16                 So it makes it an even more uneven 
17          playing field.  And I hear from our local 
18          governments and our county governments that 
19          their sales tax revenues are plummeting, 
20          there's fewer stores -- we have all kinds of 
21          empty storefronts in Manhattan because nobody 
22          is going shopping in stores.  And yet we 
23          haven't caught up with it with the tax 
24          policy.  

                                                                   101
 1                 So I applaud the Governor for that 
 2          proposal, and I hope we'll go forward.  But I 
 3          want to emphasize it's not a new tax, it's an 
 4          equal distribution and fair tax policy.
 5                 But on that note, I also want to 
 6          highlight and go further than I think Senator 
 7          Young went about the concerns around the tax 
 8          credit deferrals.  And she talked 
 9          specifically about the Low Income Housing Tax 
10          Credit, which I completely agree with her on.  
11          At a previous hearing it also came up 
12          around -- I think she talked about 
13          brownfields but also about historic 
14          rehabilitation tax credits.  And I just want 
15          to highlight as well we're even putting tax 
16          credits on green energy proposals that the 
17          Governor had just implemented.
18                 So for example, it puts a limit on the 
19          electric vehicle charging infrastructure, 
20          even though the Governor has a commitment of 
21          10,000 EV chargers installed by 2020.  And we 
22          were supposed to hit the 3,000 mark this 
23          year, and I don't think we're going to, but 
24          we still have the 10,000 mark we should hit 

                                                                   102
 1          by 2020.  But again, deferring the tax 
 2          credit -- even though it's a deferment, not a 
 3          taking away, can absolutely impact whether 
 4          the businesses who have gone in to commit to 
 5          expand our electronic vehicle infrastructure 
 6          think that they actually can afford to go 
 7          forward with this kind of infrastructure 
 8          change and the sustainable and green energy 
 9          changes.
10                 So whether it's for Tax & Finance or 
11          perhaps for Mr. Mujica, I get what the 
12          Governor is proposing, to defer because we 
13          have a financial problem.  But why did we 
14          look -- or how did we look at these?  So some 
15          of these, which seemed to be so important 
16          from a good public policy perspective, are on 
17          the list.  And yet we've got a tax 
18          expenditure budget that totals almost $30 
19          billion, I believe.  And we didn't look at 
20          most of the tax credits and exemptions that 
21          are within that $30 billion tax expenditure 
22          report or budget.  And some of those things I 
23          don't think we've looked at for 10 or 15 
24          years, and I can't see a good justification.  

                                                                   103
 1                 So why did we decide on these when a 
 2          number of them seem to be critical good 
 3          public policy tax credits, but we're spending 
 4          $500 million a year on a golden bullion sales 
 5          tax exemption.  One, why?  And two, why not 
 6          defer some of theirs?  Why not defer some of 
 7          the $1.5 billion we write off in tax 
 8          exemptions for the petroleum products in this 
 9          state?  There seems to be a disconnect 
10          between public policy thinking and revenue 
11          thinking.  So I'm just wondering.
12                 DOB DIRECTOR MUJICA:  I think we -- 
13          actually, the vast majority of the business 
14          tax credits are the ones that are deferred.  
15          We can go through with you, you know, if 
16          there are decisions made.  But to address 
17          your issue, we didn't necessarily pick and 
18          choose.  There are a few that we took off 
19          that were very recent.  Otherwise, the vast 
20          majority of them are there.  
21                 Some of the ones you just mentioned 
22          are not really things we can defer at all, 
23          just because the implications of them are 
24          not, and the tax expenditure report doesn't 

                                                                   104
 1          necessarily accurately reflect them.  So we 
 2          can go through those.  The gold bullion thing 
 3          is not a real tax credit, if you will.  Every 
 4          state has it.  It just relates to the sale of 
 5          gold overall.  No one would sell it here in 
 6          the state.
 7                 So we can go through all of those with 
 8          you.  To your point, we didn't -- we tried to 
 9          be agnostic to these individual programs, and 
10          we're not cutting them, which I think was a 
11          key distinction that Amanda mentioned, right?  
12          We're just deferring them.  We're also 
13          allowing the first 2 million to flow through.  
14          So the first 2 million actually happens.  
15          It's above 2 million, so the larger ones are 
16          the ones that are deferred, and then those 
17          will -- they'll be able to claim those 
18          credits in three years.  
19                 So when this was done last time, a lot 
20          of those we know that they still claim the 
21          credits three years later, because three 
22          years later they came and they claimed the 
23          credits.  So they didn't lose them.  So 
24          businesses can still maintain -- can keep 

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 1          that on their books and claim them later.
 2                 So that was the intent.  We didn't go 
 3          through each individual one, we took most of 
 4          them and said we're going to defer all of 
 5          them, with the exception of only like a few.  
 6          A handful.
 7                 SENATOR KRUEGER:  My time is up, so 
 8          I'll go a third round.
 9                 CHAIRWOMAN YOUNG:  Okay, thank you.  
10                 Senator Savino.
11                 SENATOR SAVINO:  Thank you, Senator 
12          Young.
13                 A lot of the areas have been covered 
14          by other members, but I want to go back to 
15          the opioid surcharge, because I'm confused as 
16          to how it would flow.  And maybe if we hear 
17          it one more time it will sink in.
18                 So right now we'll take Oxycontin, 
19          manufactured by Purdue Pharma.  So Purdue 
20          Pharma could sell it into New York State 
21          through either hospices, nursing homes, 
22          healthcare institutions.  Or, more likely, 
23          they're negotiating with pharmacy companies 
24          like CVS Caremark.  

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 1                 How would it affect them?  Who would 
 2          pay the surcharge at that point then?
 3                 DEPUTY COMMISSIONER HILLER:  Again, 
 4          the surcharge is on the first sale into 
 5          New York State.  And that's really because, 
 6          for the same constitutional issues, we can 
 7          only reach that first sale into New York 
 8          State.  
 9                 If the manufacturer is selling 
10          directly into New York State, then the 
11          surcharge would be applied to that 
12          manufacturer.  If the manufacturer is selling 
13          to a distributor like CVS Caremark and then 
14          CVS Caremark is selling it into the state, 
15          then --
16                 SENATOR SAVINO:  Okay, so stop at that 
17          point.  How do we then prevent CVS Caremark 
18          from passing the cost on to the consumers at 
19          the counter in the form of an increased 
20          copay?  
21                 Because I think we all agree we need 
22          to do everything possible to reduce the 
23          overreliance on opioids and the corresponding 
24          effects that it's having on our state.  I 

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 1          think everyone agrees with that.  It's just 
 2          what do we do to prevent them from passing it 
 3          on to the patients, who are already suffering 
 4          with the addiction issue?  And what we do 
 5          know is if you make a product too expensive 
 6          for patients, they are going to turn to the 
 7          tried and the true and the cheap, and that is 
 8          heroin.  
 9                 So I think we just have to be careful 
10          that as we go down this road, that -- this is 
11          more of a comment than a question -- that we 
12          prevent them from passing it on to the 
13          patient.  Anything we can do to prevent 
14          people from going into the black market is 
15          important.
16                 And on that issue, I want to turn 
17          to -- it's a very small proposal in the 
18          budget, it only produces $3 million this year 
19          and $5 million annually thereafter.  It would 
20          be the health tax on vapor products.  And the 
21          Executive proposes to regulate and tax vapor 
22          products in a similar manner as cigarettes.  
23          Vapor products are defined as any 
24          noncombustible liquid or gel regardless of 

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 1          the presence of nicotine.  
 2                 Fine.  But I think we need to exempt 
 3          the medical marijuana program.  The vast 
 4          majority of patients that don't use 
 5          sublingual or oils use the vaporizing method 
 6          of delivery.  The cost is already exorbitant 
 7          for patients in New York State because of the 
 8          size of the market, and we control the price.  
 9          I would just ask that we exempt that 
10          vaporizing method for medical marijuana 
11          patients.  
12                 Thank you.
13                 DOB DIRECTOR MUJICA:  Senator, just if 
14          you could, just on the opioids, because I 
15          know a couple have raised the same question.  
16                 There's two parts to this.  One is, 
17          there are some price protections in place for 
18          consumers with regard to price, so we are 
19          sensitive to that.  The other part is there's 
20          an alternative policy rationale for it, which 
21          is also a deterrent.  
22                 So we all know that there's an overuse 
23          of opioids, and the amount of prescriptions 
24          that are being written are probably far more 

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 1          than need to be.  We also know that there are 
 2          many alternatives that a lot of 
 3          pharmaceutical manufacturers, hospitals are 
 4          practicing.  They have non-opioid emergency 
 5          rooms now, they're using alternatives.  
 6                 So -- also the desire here is also to 
 7          promote alternatives.  So a deterrent, 
 8          necessarily, for opioids if you have to, but 
 9          there's an overuse problem.  And imposing the 
10          tax also might discourage some use and 
11          promote some alternative pain relief as well.  
12                 Where the line is and what that does, 
13          I think we have to work on that.  But there's 
14          an alternative policy rationale besides just 
15          funding the programs.
16                 SENATOR SAVINO:  I agree totally with 
17          that.  I'm just -- from experience and seeing 
18          it out there, if you push patients too far 
19          too fast, they will not necessarily make the 
20          best decisions.  
21                 But with respect to having an 
22          alternative option out there, we do have one.  
23          It's called medical marijuana.  Unfortunately 
24          it can't be used the same way, and it's 

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 1          incredibly expensive.  
 2                 So again, let me just reiterate.  If 
 3          we could exempt medical marijuana patients 
 4          using vaporizing as the method of delivery, I 
 5          think that would be only fair to people who 
 6          are already paying a very high cost for a 
 7          product that's providing the relief that is 
 8          an alternative to opioids.
 9                 DEPUTY COMMISSIONER HILLER:  We'll 
10          certainly take a look at that.  
11                 I would note that the proposal to tax 
12          vapor, you know, would put the administration 
13          of the tax on vapor in the same section of 
14          the Tax Law as the tax on tobacco products.  
15          And medical marijuana, the distribution 
16          structure for medical marijuana is very 
17          tightly controlled and is outside the retail 
18          chain that the cigarette taxes generally 
19          apply to.
20                 SENATOR SAVINO:  I just mention it 
21          because the language says "regardless of 
22          whether nicotine is present."  So I just want 
23          to make sure it's the pen itself.
24                 DEPUTY COMMISSIONER HILLER:  We'll 

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 1          take a look at that.  But at the same time, 
 2          to provide some comfort, that tax structure 
 3          relates to tobacco distributors to tobacco 
 4          retailers.  It's falling into that same tax 
 5          structure.
 6                 SENATOR SAVINO:  Okay.  Thank you.
 7                 CHAIRWOMAN YOUNG:  Thank you.
 8                 Senator Tedisco, and then I have some 
 9          more questions.
10                 SENATOR TEDISCO:  I keep hearing this 
11          over and over again.  The last seven years, 
12          we've -- everybody in the State of New York 
13          pays less taxes.  Well, that cannot be 
14          possible, because there are some very 
15          high-taxed communities in terms of the 
16          property tax.  
17                 And if you tell me we're not 
18          responsible, the state's not responsible for 
19          property taxes -- I don't know where you 
20          live, but when I get my property tax bill, it 
21          has a line that kind of wised up to what's 
22          going on:  Mandates related to state, in 
23          terms of the cost, 75 percent on my bill.  So 
24          telling me that in a state where we've lost a 

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 1          million people over 10 years in population, 
 2          190,000 last year, is like saying you met a 
 3          man in the desert who's been there for seven 
 4          years.  You take out the water, I'm going to 
 5          give you some water, and you put it in a 
 6          thimble and say:  Drink and be well.  
 7                 Clearly, we haven't reached a point 
 8          where we're reasonable now, or moderate now, 
 9          or competitive now, in relationship to that.  
10          So I think that's a real concern to many of 
11          my constituents.
12                 You talk about the 1.7 million 
13          individuals who go above that $10,000 
14          threshold for income and property taxes.  I'm 
15          interested in that 1.7 million who are 
16          meaningfully and profoundly impacted and who 
17          are to some essence impacted.  In that 1.7 
18          million, I'm sure there's people who are $10 
19          above the limit, $5 above the limit, $50 
20          above the limit, $100 above the limit; it has 
21          some little impact on them.  But that's a 
22          pretty large number, 1.7.  I'd like to know 
23          who are those individuals who can actually 
24          move to the other side and do standardized 

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 1          and really come out as even as they were with 
 2          taking the specifics, itemizing.  But if you 
 3          have any figures on that, where income levels 
 4          go above, really how they're impacted on 
 5          that.
 6                 And another question I have is this.  
 7          You said we shouldn't impact the part of the 
 8          state that provides the most revenues.  Were 
 9          you talking about the individuals the 
10          Governor was talking about, about a week or 
11          two ago, when he said that the rich and 
12          wealthy individuals in downstate are going to 
13          leave the State of New York because of what 
14          the federal government is doing?  Because if 
15          you're talking about that and the 
16          administration is talking about that, them 
17          leaving the state because of too progressive 
18          taxes, you know, I see Walmart giving out 
19          bonuses.  I see a lot of these big businesses 
20          and corporations giving out bonuses.  If it's 
21          going to be so negative for our rich and 
22          wealthy and they're going to leave the state, 
23          isn't that kind of talking out of both sides 
24          of your mouth?  Because last year we were 

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 1          told we cannot give or continue that $4.5 
 2          billion middle-class tax cut because we need 
 3          more progressiveness and we've got to keep 
 4          that so-called millionaire's tax.  That 
 5          millionaire's tax was supposed to sunset last 
 6          year.  We were told we can't live up to that 
 7          obligation we put forth.  
 8                 Millionaires is -- some of the small 
 9          businesses or many of the small businesses of 
10          New York State, those are the people who 
11          provide, if not most, a tremendous amount of 
12          the revenue.  You know, on the one hand 
13          you're saying we've got to have a progressive 
14          tax structure.  And I believe in that.  
15          People who make the most money in income 
16          should pay more than those who are lesser.  
17          That's progressive.  When you get too 
18          progressive, overly progressive, you get 
19          regressive.  
20                 And to suggest last year those people 
21          we got to tax more progressive so we get -- 
22          but this year when you suggest the federal 
23          government is going to increase on the rich 
24          and the wealthy -- because that's what the 

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 1          Governor said, they're going to leave the 
 2          State of New York -- now you're talking the 
 3          trickle-down situation.  You're going to tax 
 4          those rich and wealthy, they'll leave.  They 
 5          won't invest, they won't do research on new 
 6          products, they won't stay in New York State.  
 7                 And I'm thinking maybe this quarter 
 8          might be a pretty good quarter for revenues 
 9          and bonuses because of what happened at the 
10          federal level.
11                 So I'd kind of like your take on some 
12          of those things.
13                 DOB DIRECTOR MUJICA:  I hope too that 
14          it's a good quarter for revenues and bonuses, 
15          because it would help with, you know, the 
16          budget gap that we have.
17                 The state tax code is very 
18          progressive.  We have -- personal income 
19          taxes have gone down, as a matter of fact, 
20          for -- personal income taxes -- for all 
21          New Yorkers.  And corporate taxes have gone 
22          down.  The rates have gone down for 
23          corporations, the rates have gone down on 
24          personal income taxes for all.

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 1                 When you ask for -- is it meaningful 
 2          and a profound impact on the 1.7, I turn it 
 3          the other way also, when we talk about was 
 4          there benefit for the remaining people, for 
 5          the other million.  Right?  Is there a 
 6          meaningful and profound tax cut for them, or 
 7          did we take away tax deductibility and give 
 8          them a $1.50 a week benefit, as was recently 
 9          claimed?  Is that meaningful and profound?  
10                 So is the tax cut that the federal 
11          government gave to that group meaningful and 
12          profound?  We think not.  The greater -- what 
13          they did, we know, is -- 14.3 billion is 
14          meaningful and profound overall for New 
15          Yorkers.  And when we talk about the 
16          progressivity of -- you know, are we 
17          concerned about the impact on the people who 
18          pay the high rate in New York State?  We've 
19          always been talking about a marginal 
20          difference.  We're talking about a tenth of a 
21          point, a marginal change.  
22                 What the federal government does was 
23          increase the rate by like 25 percent.  That 
24          is something we're concerned about.  It's one 

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 1          thing to work on the margins and to say this 
 2          has been the tax that has been in place.  The 
 3          high rate is actually lower than it was when 
 4          the Governor took office.  So we know what 
 5          that is.  But what we have not seen is having 
 6          people's property taxes go up by 10 percent, 
 7          having their home values go down by 10 
 8          percent and having the -- for the high 
 9          earners, having their rates go up by 25 
10          percent.  None of which accrues to the 
11          benefit of New York State.  All of which 
12          accrues to the betterment of the federal 
13          government.  It's a cash grab from the 
14          federal government to them, to fund their tax 
15          cut -- some of which is tiny -- and it hurts 
16          the state.
17                 So we've reduced taxes, and I think 
18          the Governor will say he worked very well 
19          with the Legislature to cap property taxes.  
20          Can we do more?  Yes.  And we have been.  
21                 And as far as mandate relief, we've 
22          done that too.  I know people want to do 
23          more.  But we've capped Medicaid.  
24          Medicaid -- when the Governor took office, 

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 1          Medicaid was -- 25 percent of Medicaid was 
 2          funded by local governments.  Now it's 
 3          12 percent, 12 percent.  And it's going to go 
 4          down every year because it's capped.  The 
 5          state's picking up the entire amount of 
 6          Medicaid.  
 7                 That's a huge achievement.  I mean, 
 8          some of the counties don't want to 
 9          acknowledge that.  I get it, because they 
10          want more --
11                 SENATOR TEDISCO:  But that's a 
12          differential of most of the states in the 
13          United States of America.  That's why we're 
14          so different.
15                 DOB DIRECTOR MUJICA:  Yeah.  We also 
16          get the lowest FMAP rates in the entire 
17          nation.  Not only do we give the federal 
18          government $48 billion, we get reimbursed at 
19          the lowest rate out of any other state for 
20          Medicaid, at 50 percent.  That's the lowest 
21          rate.  Some states get 75 percent, some 
22          states get a lot more.  
23                 So we get less than the federal 
24          government.  We've agreed to do that because 

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 1          we're a high-income state.  But it's not fair 
 2          to take even more, and take even more under 
 3          the guise that it's a tax cut for the middle 
 4          class.  It is not.  It's a $1.5 trillion tax 
 5          cut that was paid for with deficit spending 
 6          and impacts New Yorkers negatively.  It 
 7          impacts the state by $14 billion.  
 8                 So that's the reality of it.  We can 
 9          help to fix that and mitigate it, but we 
10          can't deny that it happened and we can't do 
11          nothing.
12                 SENATOR TEDISCO:  Thank you.
13                 CHAIRWOMAN YOUNG:  Thank you.
14                 Just a couple more questions.  Just 
15          back to the opioid tax that's proposed.  How 
16          much revenue is that projected to raise?
17                 DEPUTY COMMISSIONER HILLER:  It's 
18          projected to raise $127 million in Year 1 and 
19          $171 million in Years 2 and outyears.
20                 CHAIRWOMAN YOUNG:  So all of that, 100 
21          percent, would be used for opioid prevention, 
22          recovery, treatment, all those services?
23                 DEPUTY COMMISSIONER HILLER:  The 
24          proposal dedicates that surcharge to an 

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 1          opioid prevention treatment fund and opioid 
 2          treatment.
 3                 CHAIRWOMAN YOUNG:  A hundred percent?  
 4          It wouldn't be used for anything else?
 5                 DEPUTY COMMISSIONER HILLER:  I'm 
 6          hopeful that some tiny, minuscule fraction of 
 7          that will allow us to recoup some of our 
 8          costs in administering it, but I don't 
 9          remember whether that's a piece of the bill.  
10          But even at that, that would be some tiny, 
11          tiny fraction of it, and my guess is it 
12          probably didn't make it through the process.
13                 CHAIRWOMAN YOUNG:  Thank you.  
14                 And then just a final question.  I 
15          know Senator Krueger asked about the credits 
16          that are affected by the deferment.  And 
17          there are several, it's not just the 
18          brownfields and the low income housing tax 
19          credits, the biofuel production credit, 
20          disabled worker credit, farm workforce 
21          credit, credit on SONYMA mortgages, green 
22          buildings, jobs retention credit -- and 
23          that's just a partial list.
24                 I think, according to this sheet that 

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 1          I have, these are the credits that -- it's 
 2          hard to see, obviously, but these are the 
 3          credits that are affected (indicating).  
 4          These are the credits that are not affected 
 5          by the deferments, and that's a lot easier to 
 6          read, because it's much shorter (indicating).  
 7          It's the Excelsior Program, the film 
 8          post-production credit, commercial production 
 9          credit, Youth Works credit, Hire a Vet 
10          credit.  
11                 Are there any other credits that are 
12          not affected by the deferment?  Or is that 
13          basically it?
14                 DEPUTY COMMISSIONER HILLER:  I don't 
15          have that list in front of me, but that 
16          sounds about right.
17                 CHAIRWOMAN YOUNG:  Okay.  And just 
18          because you're proposing to affect all these 
19          other credits by deferment, how did you 
20          choose those five credits?
21                 DEPUTY COMMISSIONER HILLER:  Some of 
22          them, like the Hire a Vet credit, I don't 
23          believe we have any taxpayers that are 
24          claiming more than $2 million on that credit.

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 1                 CHAIRWOMAN YOUNG:  What about the film 
 2          production credit?
 3                 DOB DIRECTOR MUJICA:  We left two 
 4          credits in place, the film production credit 
 5          -- the main credits that remained were the 
 6          film production credit and the Excelsior 
 7          credit.  
 8                 And the Excelsior credit we're still 
 9          using, it's an active credit that is our main 
10          economic development tool.  So in the 
11          interests of being able to still maintain 
12          some ability to bring new businesses here and 
13          do some economic development incentives, 
14          amongst all of that list -- I think, you 
15          know, it's a good thing to look at that whole 
16          list, because they've been created over time 
17          and they still remain -- but the Excelsior 
18          credit is one we're actively using as an 
19          economic development tool, that ESD uses, and 
20          the film production tax credit is one that's 
21          actively creating jobs right now, and it's a 
22          significant amount.
23                 So those two, in addition to the 
24          vets -- and I think there was one other.  But 

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 1          that's really the rationale behind that.
 2                 CHAIRWOMAN YOUNG:  I see Youth Works 
 3          credit.  
 4                 So, you know, and I fully agree with 
 5          you, especially on the Excelsior credit, 
 6          because we've used that to create jobs all 
 7          over the state.  So I'm glad to see that 
 8          that's left alone.  
 9                 And I just want to say thank you for 
10          being here today.  I know it's been quite a 
11          lengthy process, but a lot of good 
12          information was shared with us today, and we 
13          really appreciate it.
14                 CHAIRWOMAN WEINSTEIN:  Likewise, I 
15          want to thank you for being here, and I hope 
16          once -- 
17                 CHAIRWOMAN YOUNG:  Oh, I'm sorry, 
18          Senator Krueger has another round.  I 
19          apologize.
20                 SENATOR KRUEGER:  Sorry.  Well, I also 
21          appreciate your being here.  I'll just keep 
22          you a few more minutes.
23                 So for years I've been proposing that 
24          the way we could increase revenue -- not with 

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 1          a new tax, but with a fairer structure -- is 
 2          to go after what is being seen around the 
 3          world with people collecting sales tax but 
 4          not paying it to the states.  And we are now 
 5          one of the few states that hasn't gone to 
 6          some kind of automated system of tracking at 
 7          the location the actual taxes collected, but 
 8          then not tracking to see that they get paid.  
 9                 So we still do a robust audit process, 
10          and we hear from people that it's very 
11          actually time-consuming, both for the 
12          businesses and for the state, to do all of 
13          these audits.  But more and more around the 
14          world, they're actually using automation to 
15          actually track.  And there are researchers 
16          who have projected that New York State could 
17          easily collect another $2 billion a year, not 
18          in new taxes, but in taxes that actually are 
19          getting paid by consumers and never being 
20          moved to the state.
21                 So since we haven't gone the 
22          automation route, are we collecting that 
23          money and I'm just not aware of it?  Or, I 
24          mean, why are we not doing what other states 

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 1          modernizing are doing?
 2                 EX. DEP. COMMISSIONER MANION:  I think 
 3          that we are using automation to collect a lot 
 4          of tax, because we get third-party 
 5          information.  We get third-party information 
 6          from the banks as far as like credit card 
 7          information for the sales of the different 
 8          businesses.  
 9                 And as you know, not everything is 
10          taxable at the point of sale.  So we use our 
11          business analytics to use the information we 
12          get from the credit card companies, we get 
13          information from the third-party sources -- 
14          beer, wine and liquor, they report to us on a 
15          regular basis.  We have information from the 
16          cigarette distributors.  
17                 So we have a profile of all the 
18          different businesses, and like businesses, so 
19          that we can use that to identify those that 
20          fall out of the norm to apply our audit 
21          techniques to.
22                 As far as tracking everything at the 
23          site, I know I've seen some of this in place.  
24          I've also seen where they just don't enter 

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 1          it.  You know, it's as easy as leaving the 
 2          cash register open and not putting the 
 3          information into it.  So there's a lot of 
 4          ways of not paying the tax, not recording the 
 5          tax.  I think our audit program and us having 
 6          that third-party information is fairly 
 7          efficient.  I'm sure it's not picking up 
 8          everything.  But I think we get better at it.  
 9          We use a lot to identify where there is a 
10          compliance issue.  And we use third-party 
11          information to calculate what the tax would 
12          be.
13                 So when we go into a business, a 
14          business that normally gets selected, they 
15          probably don't have a great point of sale, 
16          they probably don't have a lot of good 
17          internal controls.  And so we do end up doing 
18          what we call an indirect audit.  And by doing 
19          that, what we find from like their suppliers 
20          -- you know, how many pizza boxes did you 
21          buy, versus how many did you record as sales.  
22          And so we use that type of information to get 
23          at the accuracy of it.  
24                 I think that New York State vendors 

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 1          would probably be opposed to having 
 2          everything tracked and monitored by the 
 3          government.  But if that's the way to go, I'm 
 4          sure we could write a system that could help 
 5          with compliance.
 6                 SENATOR KRUEGER:  Well, the reason I 
 7          keep asking every year, or probably every 
 8          year, is that more and more parts of the 
 9          world and more and more states in this 
10          country are going that route.  And you 
11          actually even hear from some vendors that 
12          they would prefer that, that they actually 
13          find that they get themselves in trouble 
14          because they collect the sales tax but then 
15          they have cash and they suddenly just start 
16          to spend it instead of actually having it 
17          available to pay in.
18                 So there are even Third World 
19          countries that do it at point of sale where 
20          they don't even have wired systems, but 
21          they're using, you know, smartphones to 
22          actually report into their tax systems.
23                 So are we seeing a significant growth?  
24          Because the research shows it's at 

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 1          restaurants, bars, franchise stores, you 
 2          know, large and small.  So are we seeing in 
 3          your model, that whatever you're using, that 
 4          we're seeing a growth in the rate of 
 5          collection?
 6                 EX. DEP. COMMISSIONER MANION:  I think 
 7          we're seeing -- we're doing more audits.  
 8          We're doing them quicker.  And we're 
 9          collecting more money on it.  
10                 We've also instituted a number of 
11          other compliance type of initiatives where 
12          we're identifying taxpayers, similar to what 
13          you said, where they're doing the collection 
14          but then they tend to pay their payroll with 
15          the sales tax money.  So what we're doing is 
16          we're increasing the number of what we call 
17          the segregated bank accounts.  We ask them to 
18          go into a segregated bank account.  So we're 
19          assisting them in their compliance.  So every 
20          day, you know, you've got your system and it 
21          says that you collected $420 in sales tax, 
22          put it into that account and use that account 
23          for it.  
24                 We're increasing our education and our 

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 1          reminders out to taxpayers that are at risk 
 2          of falling off.  So now with our online 
 3          service accounts, people are web-filing 
 4          through our system and they come in through 
 5          the online service accounts.  And we send 
 6          reminders out to them.  Like each quarter, we 
 7          have people that start filing their sales tax 
 8          return, they start putting the information 
 9          in, but then they don't hit send for the due 
10          date.  So we're doing outreach to them 
11          through the email to say, you know, you 
12          haven't submitted this, is this an error, is 
13          this something you want to do?  You know, is 
14          this something that you should be doing?  
15                 So we're doing a lot of that.  For the 
16          taxpayers that are trying to comply and are 
17          trying to get it right, we're doing a lot to 
18          help them.  And then we're doing a lot to be 
19          looking for those that are not complying on 
20          the other end.
21                 SENATOR KRUEGER:  I guess just 
22          finally -- and more, I think, for 
23          Mr. Mujica -- so at the Local Governments 
24          hearing you had quite a few of the local 

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 1          governments talking about their concern that 
 2          as the utilities want to move to a 5G system 
 3          and systems where they no longer wire or 
 4          cable to provide any utilities to us -- 
 5          phone, TV, Internet -- that they actually are 
 6          going to be losing the ability to tax and 
 7          collect money and control anything at the 
 8          local level.
 9                 I would urge you and the Governor to 
10          take a look at the fact that, again, because 
11          the world is changing and technology is 
12          changing so fast, we are creating a system of 
13          an uneven playing field, depending on whether 
14          you're a business model that, you know, has a 
15          cable that goes somewhere versus a business 
16          model where everything is in the ether or in 
17          the cloud.  
18                 There's an issue of ESCOs not having 
19          the same tax system and paying the same taxes 
20          as other utilities, which seems to me to be 
21          totally unfair.
22                 We still have the fact that DISH TV 
23          doesn't pay the same taxes as the TV systems 
24          that have cables and wires, although 

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 1          apparently they're all going to a model where 
 2          they won't have cables and wires.
 3                 So it would be the Tax Department 
 4          collecting the revenue, but it's really a 
 5          bigger-picture policy question on how does 
 6          the State of New York ensure, one, that we're 
 7          getting the revenue we need, but two, that we 
 8          have an even playing field for business 
 9          models that continue to evolve?  And we want 
10          them to evolve and be successful.  I just 
11          personally think that they ought to all pay 
12          the same rate of taxes to the State of New 
13          York.
14                 DOB DIRECTOR MUJICA:  Yeah.  So 
15          there's a certain commonality, really, in all 
16          the things that you just talked about.  And 
17          the state tax code sometimes is slow to keep 
18          up with technology.  I think that's what the 
19          Internet Fairness Tax is also about, which we 
20          already discussed, right -- go to one site, 
21          you pay the sales tax; go to another site, 
22          you don't pay the sales tax.  It's the exact 
23          same product.
24                 On the issue of -- on the ESCOs, we 

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 1          attempted to address some of that in the 
 2          budget by imposing the sales tax.  I know 
 3          there's an issue of whether or not localities 
 4          can impose a gross receipts tax, which we're 
 5          looking at as well.
 6                 On the 5G issue, there's two policy 
 7          goals here, right?  There's one the Governor 
 8          just announced, 99.9 percent of the state 
 9          having broadband capability and doing that.  
10          On 5G, it's the same thing.  What you're 
11          seeing in a lot of communities is slower 
12          internet service as a result of just capacity 
13          issues.  So you want the ability to build 
14          out.  At the same time, you want to have a 
15          fair taxing structure in place.  
16                 And our law doesn't allow local 
17          governments presently, independently, to do 
18          all of those things.  And in the interest of 
19          maybe raising revenue, right, there's a 
20          secondary interest on making sure that 
21          there's as much access to 5G as possible.
22                 So this is a new thing.  This is 
23          something we have to talk about.  But the 
24          proposal here is one about should we have a 

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 1          standardized way of imposing a tax or a fee 
 2          structure on 5G, as opposed to allowing local 
 3          governments to independently do different 
 4          things.  Which may be in the interests of 
 5          local government, but not in the interests, 
 6          necessarily, of the consumer.  So that's 
 7          something that we can talk about, you know, 
 8          during our budget discussions.  
 9                 And on the issue of DISH and internet, 
10          again, that just goes to all things that, you 
11          know, are now changing.  Right?  They go onto 
12          the internet, they go electronically.  You 
13          know, just can we maintain our overall tax 
14          base while just taxing the same things, just 
15          they're in a new form -- not raising 
16          anything, but just making sure that we're not 
17          losing some compliance that way.
18                 So we're looking at all of those 
19          things, and it's -- so we have to keep up, 
20          our tax laws have to keep up with technology.
21                 CHAIRWOMAN YOUNG:  I just had a couple 
22          more questions, just because Senator Krueger 
23          raised some questions in my mind.
24                 So the proposal in the Governor's 

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 1          budget would actually raise taxes on building 
 2          out providers for 5G internet, that sort of 
 3          thing.  And as you know, in rural areas 
 4          across the state, such as the one I 
 5          represent, there's a real shortage of that 
 6          type of infrastructure, and it's put rural 
 7          areas at a real economic disadvantage.  And 
 8          it actually impacts people's quality of life.
 9                 So if you raise taxes, and it's -- you 
10          know, if you heavily tax building out and you 
11          put that on the people who would build out, 
12          what incentive would there be for them to do 
13          so?  I know there's language that says that 
14          they can't pass it along to the consumer.  
15          But what company in their right mind would 
16          take on those heavy costs and be incentivized 
17          to actually put in the infrastructure?  
18                 This is something that is akin to the 
19          1930s when they electrified the state and 
20          they put electricity in rural areas.  And for 
21          my mind, I think the fact that we need that 
22          broadband, that kind of infrastructure is 
23          crucial to our economic success.  And we're 
24          way behind a lot of other states in building 

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 1          out that infrastructure.
 2                 So I just -- I guess I want to raise 
 3          there's a concern over this heavy tax that's 
 4          included, because I think that it actually 
 5          could backfire and cause fewer buildouts than 
 6          what we actually need.
 7                 DOB DIRECTOR MUJICA:  And the intent 
 8          on the 5G issue is actually not to impose a 
 9          new tax, but to standardize how local 
10          governments do it so it's not different to 
11          taxing regimes all across the different 
12          municipalities, but there's a commonality to 
13          it.  So that's --
14                 CHAIRWOMAN YOUNG:  But isn't there a 
15          proposal to -- you know, if you use the 
16          right-of-way, for example, on the Thruway, 
17          wouldn't there be a heavy tax imposed to 
18          companies for using that right-of-way?  
19                 DOB DIRECTOR MUJICA:  So there is a 
20          proposal separate from the 5G on the use of 
21          the right-of-way.  There are certain 
22          businesses that are technology firms, 
23          communications firms, that are currently 
24          using the right-of-way and there is no fee 

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 1          for that right-of-way.  Other states charge a 
 2          fee for the use of the right-of-way where 
 3          they're using that technology in order to, 
 4          you know, to raise --
 5                 CHAIRWOMAN YOUNG:  How does the 
 6          proposal in the budget compare to those other 
 7          states as far as how heavy the tax is, 
 8          whether it's annual or not annual, whether 
 9          it's one time?  Have you done an analysis of 
10          that?  
11                 DOB DIRECTOR MUJICA:  We have.  We 
12          believe it's similar.  But we can get back to 
13          you on that analysis.
14                 CHAIRWOMAN YOUNG:  That actually would 
15          be great.
16                 And I do have one final question, I 
17          apologize.  But this ties into the proposed 
18          tax hikes.  And as you know, in the Senate we 
19          pass legislation every year to impose a 
20          permanent 2 percent spending cap.  And we've 
21          worked successfully with the Governor ever 
22          since he became governor to try to adhere to 
23          that 2 percent spending cap.  
24                 I know the Governor has spoken 

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 1          extensively about the $4.4 billion budget 
 2          shortfall that we're facing this year, and 
 3          obviously that's serious.  But what happens 
 4          when you apply the 2 percent spending cap?  
 5          Because it's my understanding that that would 
 6          actually take the deficit down to about $1.7 
 7          billion.  Is that the case?
 8                 DOB DIRECTOR MUJICA:  That's right.  
 9          So if you apply the 2 percent spending cap, 
10          it reduces the gap by about $2.7 billion, 
11          leaving $1.7 billion.
12                 Now, applying the cap doesn't mean you 
13          have to do things, right, it just means that 
14          we have to reduce spending by $2.7 billion, 
15          which you see all of those actions in the 
16          budget.  But yeah, you're correct that the 2 
17          percent brings --
18                 CHAIRWOMAN YOUNG:  Right.  So it 
19          limits growth in programs, some of the 
20          heavier-cost programs such as Medicaid, for 
21          example, right?  So instead -- it still would 
22          grow, but it limits it to 2 percent.  Is my 
23          understanding of that --
24                 DOB DIRECTOR MUJICA:  That's right.  

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 1                 The biggest factor, the biggest-growth 
 2          areas, right, are -- because it's 45 percent 
 3          of the budget -- is school aid and Medicaid.  
 4          Because they're both growing at much greater 
 5          than 2 percent.  
 6                 So in order to stay at the 2 percent, 
 7          the rest of the budget is mostly at zero, and 
 8          then you have Medicaid growing by about 3.2 
 9          and education growing at 3.
10                 So yes, so the 2 percent is in the in 
11          middle of that.  It allows us to increase 
12          Medicaid and education by more than the 2.  
13          And then everything else has to be at zero 
14          because you're -- because it's --
15                 CHAIRWOMAN YOUNG:  So really, in the 
16          context of a $168 billion proposed budget, a 
17          $1.7 billion shortfall is much more, 
18          manageable than $4.4 billion, right?  So --
19                 DOB DIRECTOR MUJICA:  Yeah.  And prior 
20          -- this is the -- in prior years, by applying 
21          the 2 percent spending discipline, we were 
22          able to almost eliminate the gap.  Right?  So 
23          in prior years after you did the 2 percent, 
24          you're at a couple hundred million dollars.  

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 1          This year, for the first time, even after 
 2          doing the 2 percent, you're at $1.7 billion, 
 3          and that's the greatest number since 2011.  
 4          So it's a significant number.  And then you 
 5          have the federal risks on top.  
 6                 But yes, it's -- 2 percent doesn't 
 7          mean, though, you don't have to do cuts; it 
 8          means you've still got to find, you know, 
 9          $2.7 billion in savings.  But that's the 
10          benchmark, and then you try to solve after 
11          that.
12                 CHAIRWOMAN YOUNG:  Thank you.  And I 
13          just think that, for example, on the 
14          deferments, on the programs that actually 
15          stimulate the economy, if the number is much 
16          more manageable, then we should probably take 
17          a look at that and continue to not have the 
18          deferment, for example, on some of the 
19          programs, those types of programs, because we 
20          need to grow the economy in New York.
21                 But thank you again for all the 
22          information that you shared today.
23                 CHAIRWOMAN WEINSTEIN:  I again want to 
24          thank you for being here.  And I assume once 

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 1          we see the 30-day amendments, there will be 
 2          more discussions on -- there may be some more 
 3          questions and discussions.  We look forward 
 4          to having those with you.  
 5                 Thank you again for being here.
 6                 DOB DIRECTOR MUJICA:  Thank you, 
 7          Chairwoman Young.  Thank you, Chairwoman 
 8          Weinstein.
 9                 EX. DEP. COMMISSIONER MANION:  Thank 
10          you.
11                 CHAIRWOMAN YOUNG:  Thank you.  
12                 CHAIRWOMAN WEINSTEIN:  Thank you.  
13                 Next we have the Business Council of 
14          New York State, Ken Pokalsky, vice chairman 
15          {sic}.  
16                 MR. POKALSKY:  Good morning, 
17          Chairwoman Young, Chairwoman Weinstein.  And 
18          I appreciate the promotion.  
19                 I'm Ken Pokalsky.  I'm vice president 
20          of government affairs for the Business 
21          Council of New York State.  And on behalf of 
22          our membership, I really welcome the 
23          opportunity to be here this year, as in 
24          previous years.  

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 1                 And importantly, as I think you've 
 2          heard, we're talking about some new and 
 3          unique tax policy challenges and issues than 
 4          in prior years.  
 5                 In my written testimony today, I focus 
 6          on three broad topics.  I'm really going to 
 7          spend my time at the microphone on the first 
 8          two.  We talk about general conformity 
 9          issues, bringing New York State's income and 
10          corporate tax into conformance with the 
11          amended federal tax code.  We're going to 
12          spend some time talking specifically about 
13          the mitigation measures that you just heard 
14          about, such as the payroll tax concepts.  
15                 And as always, we focus on the revenue 
16          measures and tax policy changes included in 
17          the Executive Budget.  I'll touch on those if 
18          I can, but I think the first two are new and 
19          different and I'd like to spend most of my 
20          time there.  
21                 In his State of the State message, the 
22          Governor argued that increasing the cost of 
23          state and local taxes makes New York less 
24          competitive and helps other states at our 

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 1          expense.  We couldn't agree more.  And we 
 2          would emphasize that this is true whether the 
 3          tax increases come from federal or  state 
 4          legislative actions.  
 5                 And it's important to recognize that 
 6          despite some recent improvements, and you've 
 7          heard about them today -- the cap on property 
 8          taxes, 2 percent spending control, 2014 
 9          corporate franchise tax reform, and others -- 
10          New York remains a high-tax state.  It's a 
11          high-tax state in general, it's a high-tax 
12          state for business.  And you can quibble with 
13          the methodologies, but every major analysis 
14          that we're familiar with -- whether it's by 
15          the Tax Foundation, Forbes does an annual 
16          study of state and local tax burdens, some 
17          done by private firms, by Andersen Economic 
18          Group and others -- we're ranked within the 
19          top one or two, maybe top four or five, in 
20          terms of overall tax burden.  
21                 I say that because, one, we have 
22          specific tax measures in the budget aimed at 
23          the private sector, but also there's this 
24          growing narrative that says because there's a 

                                                                   143
 1          federal reduction in business tax rates,  New 
 2          York State should raise its taxes on those 
 3          businesses.  
 4                 Now, that may make some sense if you 
 5          are in a fairly low-tax jurisdiction.  But as 
 6          I've just said, New York State's overall tax 
 7          burden on employers is high, we think it's 
 8          the wrong way to go.  
 9                 Importantly, if you look at the 
10          details of the Executive Budget economic and 
11          revenue projections, they're projecting a 
12          billion-dollar increase in fiscal 2019 in 
13          corporate franchise tax payments to the 
14          state, driven primarily by growth in 
15          corporate profits.  While that forecast may 
16          be somewhat optimistic -- and they're 
17          forecasting a 32 percent increase in fiscal 
18          '19, 15 in the following year -- to us it 
19          illustrates the importance of promoting 
20          economic growth, rather than new tax 
21          mechanisms, to the state's long-term 
22          financial future.  
23                 A couple of comments on federal 
24          conformancy.  The Business Council was a 

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 1          strong supporter of federal business tax 
 2          reform, and we're on the record and 
 3          communicated our support to Congress.  At the 
 4          same time, we did oppose the caps on SALT 
 5          deductibility.  We didn't think the statute 
 6          had to be written that way.  And we certainly 
 7          raised concerns there.  
 8                 But in terms of the overall changes, 
 9          we have to remember what the purpose was, the 
10          original purpose of the reform effort, and 
11          that was to bring the federal taxing 
12          mechanisms into line with what other major 
13          industrial nations do.  And that reform did 
14          two basic things.  It moved us to what's 
15          known as a territorial or waters-edge tax 
16          scheme where, going forward, most but not 
17          all, most foreign-earned income will be not 
18          taxed by the U.S.  
19                 It also brought our tax rates into 
20          line with what the other OEDC states were 
21          imposing.  And U.S. corporate tax rates are 
22          high on both a statutory and effective tax 
23          basis.  
24                 It did a lot of other things.  And as 

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 1          you heard earlier about issues in decoupling 
 2          or staying coupled with federal tax reforms 
 3          in the personal income tax arena, we think 
 4          there's also some important reforms that have 
 5          to be done in the state's corporate franchise 
 6          tax to again avoid unintended consequences 
 7          and tax increases due to a new misalignment 
 8          between federal and state tax laws.  
 9                 I'll just give you two examples.  
10          Under the federal tax reform, certain 
11          economic development incentives provided by 
12          state and local governments will be 
13          considered contributions to capital and 
14          therefore recognized in a business's gross 
15          income, adding to their federal tax 
16          liability.  These are, you know, capital 
17          grants, as we do with the Regional Economic 
18          Development Council process.  It would make 
19          no sense for New York State to remain coupled 
20          to that federal change, as it would erode the 
21          value of economic development incentives 
22          being handed out by one hand of the state, 
23          but then taxed by the other.  
24                 Another example is federal tax reform 

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 1          provides for bonus depreciation, the ability 
 2          to write off a hundred percent of the cost of 
 3          capital expenses in the year they were 
 4          incurred.  But as a tradeoff, the federal 
 5          reform puts a cap on deductibility of 
 6          interest expenses, arguing that those 
 7          interest expenses are usually incurred as the 
 8          price of investing in capital.  
 9                 New York State has already decoupled 
10          from the provisions of federal law that offer 
11          federal bonus depreciation, and so far we've 
12          seen no proposal from the administration to 
13          recouple.  But if that stays and we do not 
14          get the benefits of bonus depreciation, we 
15          should also decouple from the federal caps on 
16          interest deductions as well.  
17                 In the next several days, we'll be 
18          presenting the administration and the 
19          Legislature with our complete set of 
20          recommendations on business tax conformity 
21          issues.  But our basic position is this, that 
22          for both the corporate franchise tax and the 
23          personal income tax, New York State should 
24          adopt conformity language that avoids 

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 1          increases in state tax liabilities due to 
 2          New York's tax law falling out of alignment 
 3          with the new federal language.  
 4                 Now I want to spend the rest of my 
 5          time talking about tax mitigation and payroll 
 6          tax alternatives.  
 7                 We appreciate the administration's 
 8          effort to examine ways to mitigate the 
 9          adverse impacts of federal tax reforms, 
10          principally the cap on SALT deductibility.  
11          Of course, one alternative is to actually 
12          reduce the state and local taxes subject to 
13          the SALT deduction cap.  Expiration of the 
14          so-called millionaire's tax rate and tax 
15          bracket in 2020 will significantly mitigate 
16          the impact of the SALT deduction cap on 
17          high-income earners.  And by the way, the 
18          higher the earnings, the more complete the 
19          mitigation is.  
20                 But we've reviewed the department's 
21          January 2018 preliminary report on mitigation 
22          measures.  We've received considerable input 
23          from our membership, businesses of all types 
24          and sizes, from practitioners in the legal 

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 1          and accounting world.  And while we look 
 2          forward to reviewing any specific payroll tax 
 3          options included in the 30-day amendments, 
 4          I'd like to share with you what our response 
 5          and concerns are to date.  
 6                 Any payroll tax mechanism would likely 
 7          result in immediate cost shifts to the 
 8          employer.  As the department's report 
 9          recognizes, a payroll tax for income tax swap 
10          can only maintain pre-federal-reform levels 
11          of after-tax income for both employers and 
12          employees if it's accompanied by a wage 
13          reduction roughly equivalent to the new 
14          payroll tax being paid by the employers.  And 
15          as you've talked about already, there's a lot 
16          of issues and concerns about reducing wages 
17          to balance out that equation.  As a math 
18          equation, in a spreadsheet, I can show you 
19          how it works.  In the real world, there's a 
20          lot of concerns.  
21                 Issue Two.  As is illustrated in the 
22          Executive Budget's fiscal plan, the state 
23          will be facing significant budget gaps in 
24          each of the next three years, and likely 

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 1          beyond that.  And a new payroll tax on 
 2          employers will be a tempting target for 
 3          future administrations and legislatures 
 4          looking for increased taxes revenues but 
 5          reluctant to impose such taxes directly on 
 6          employees or consumers.  
 7                 Third, any payroll tax mechanism can 
 8          only -- you've heard this $14 billion cost 
 9          impact to New York taxpayers.  Any payroll 
10          tax mechanism can only offset a fraction of 
11          that, for a couple of reasons.  Most of that 
12          incurs amongst upper-income taxpayers who a 
13          significant portion of their income is 
14          nonwage income, so a payroll tax for PIT swap 
15          has no effect.  
16                 Likewise, somewhere between 15 and 
17          20 percent of all wage income in New York 
18          State is for employees who work for either 
19          not-for-profits or government.  There's no 
20          payroll tax/deductibility swap to be had for 
21          those taxpayers.  
22                 Adopting a new payroll tax mechanism, 
23          especially one that tries to replicate the 
24          progressivity of the personal income tax, 

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 1          will impose significant new administrative 
 2          and compliance burdens on the state and 
 3          employers alike.  
 4                 And even for an opt-in alternative 
 5          where you said an employer could choose to be 
 6          taxed under this regimen or not, we see a lot 
 7          of concerns.  As an example, in the 
 8          department's option paper, it suggested 
 9          employers that opt into such programs could 
10          be subject to provisions, and I quote, 
11          advancing other state policy objectives 
12          relating, for example, to labor policies or 
13          workforce investments.  
14                 At most, we really urge a more 
15          thorough review of options, maybe with an 
16          expert workgroup comprised of tax policy and 
17          tax administration experts, looking at both 
18          the alternatives and the practical challenges 
19          of implementing those.  
20                 As I said, we focus on a lot of issues 
21          in the budget in both our testimony -- and 
22          other bill memos that we'll be giving to the 
23          Legislature address others.  If I could make 
24          just two very brief comments on some of the 

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 1          specific tax provisions in the 
 2          Executive Budget.  
 3                 One is on the deferrals.  One thing 
 4          that needs to be considered, by the Division 
 5          of Budget's own projections, New York State 
 6          is going to have a much more challenging 
 7          financial situation in 2021 than it will this 
 8          year --
 9                 CHAIRWOMAN WEINSTEIN:  Can you -- it 
10          would just help if you could just conclude, 
11          because we've actually given more time than 
12          we have in other dates.
13                 MR. POKALSKY:  Sure.  Sure.  So our 
14          concern is that when those tax credits become 
15          due, New York State is going to have even 
16          less ability to make good on the commitments 
17          already made to taxpayers who have made 
18          investments or hired new workers in New York 
19          State.  
20                 So I'll stop there, and I welcome any 
21          questions or comments you have.
22                 CHAIRWOMAN YOUNG:  Thank you.  I do 
23          have some questions.
24                 You touched on it, but what challenges 

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 1          would a switch from personal income tax to a 
 2          payroll tax pose for employers?
 3                 MR. POKALSKY:  Sure.  Well, first and 
 4          foremost, if the purpose is to leave both the 
 5          employer and the employee with the same 
 6          after-tax income as they would have had 
 7          pre-federal reform, a major part of the 
 8          equation is there's going to be a wage 
 9          adjustment.  And the department's white 
10          paper, option paper, suggests that.
11                 That's going to be a challenge to do 
12          in all circumstances.  And if you have an 
13          organized workforce, it will certainly have, 
14          you know, more challenges.  If you have 
15          employees at or near the minimum wage, it 
16          would -- you probably wouldn't need to do 
17          this for them to keep them whole taxwise.
18                 CHAIRWOMAN YOUNG:  But this was 
19          pointed out -- but also was pointed out.  But 
20          that could push them into Medicaid programs, 
21          which would increase the tax burden, right?
22                 MR. POKALSKY:  Sure.  That's issue 
23          number one.  
24                 Issue number two are all the other 

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 1          things that are based off wages, including 
 2          pension calculations, 401(k) matches, state 
 3          benefits, et cetera.
 4                 It's a big change.  It's the 
 5          administration of it.  If you tried to -- 
 6          right now an individual, those with -- you 
 7          know, declares their or proposes their 
 8          withholdings, based on what they expect their 
 9          tax liability to be for the year.  At the end 
10          of the year, you file a return, you may get a 
11          refund, you may pay more.  If the purpose was 
12          to create a payroll tax that replicates what 
13          an employee would pay on their income tax, at 
14          the end of the year there's going to be a 
15          misalignment.  And I don't know how you would 
16          reconcile at the end of the year.
17                 To not do that, you would -- you know, 
18          the option paper talks about just doing a 
19          flat tax on all payroll.  If that's 
20          substituting for, you know, progressive 
21          income tax, you've lost an important design 
22          of the state's income tax structure.
23                 So a lot of technical challenges of 
24          doing it.

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 1                 CHAIRWOMAN YOUNG:  Thank you for that.
 2                 We had a discussion, Vice President 
 3          Pokalsky, with previous witnesses about 
 4          deferring the tax credits.  So what impact, 
 5          in your estimation, would the deferment of 
 6          tax credits have on businesses?  And 
 7          especially, what happened in 2010, the last 
 8          time that this happened?
 9                 MR. POKALSKY:  Well, we know that -- 
10          we've done a number of things on tax credits 
11          already awarded.  In 2010, they were deferred 
12          for three years.  We imposed new criteria on 
13          businesses that made investments under the 
14          old Empire Zone program, but lost the 
15          benefits based on the change.  In our view, 
16          all of these types of measures makes it that 
17          much more challenging for New York State to 
18          sell itself and its incentive programs to 
19          businesses looking to do business in New York 
20          State.
21                 We're now -- we're working up a list, 
22          looking at the brownfield programs in 
23          particular, because the data is out there and 
24          readily accessible, to look at projects that 

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 1          will likely be over $2 million in the 
 2          redevelopment component.
 3                 So these are projects where financing 
 4          is being put together specifically for that 
 5          project.  They're usually done through LLCs.  
 6          And the credit is an important component of 
 7          the cost benefit of making an investment on a 
 8          site where you're going to have to incur 
 9          unusual costs to do cleanup in the first 
10          place.
11                 Our concern is that is going to be a 
12          major -- if the purpose of the brownfield 
13          program is to cleanup and redevelop already 
14          used properties, mostly in urbanized areas, 
15          this is going to make it that much more 
16          unlikely that investors are willing to do so.  
17          You're designing your financing package for 
18          today, and to say, well, a major component of 
19          it will only be available to you in 2021 -- 
20          and by the way, you don't get it in 2021, it 
21          gets paid back to you on refundable credits 
22          over a three-year period, nonrefundables over 
23          -- it could be up to a 10-year period.
24                 That really changes the equation on 

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 1          how you put a package together.  So we do 
 2          think it will discourage certain types of 
 3          investments.
 4                 And lastly, one of the largest 
 5          dollar-wise -- two of the largest dollar-wise 
 6          credits are of particular interest to 
 7          manufacturing, the investment tax credit and 
 8          the tax credit for real property taxes paid 
 9          by manufacturers.  One, you know, is a direct 
10          support for ongoing capital investments, and 
11          the other is trying to offset the high cost 
12          of property taxes on capital-intensive 
13          businesses.
14                 We think the effect on those 
15          businesses would be immediate, would have an 
16          immediate impact on their cost of doing 
17          business in New York State.
18                 CHAIRWOMAN YOUNG:  Did you do an 
19          analysis after 2010?  Did the Business 
20          Council ever really look at what the economic 
21          impact was?  Because that was a downturn time 
22          in the economy, and we knew that -- at least 
23          from the companies that I was aware of, who 
24          were impacted by this change in the law, that 

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 1          they were very upset at New York, New York 
 2          had made a promise to them, New York didn't 
 3          keep the promise.
 4                 Did you do an analysis, any kind of 
 5          economic analysis on what happened after 
 6          2010?
 7                 MR. POKALSKY:  Not specific on 
 8          reaction to tax credit deferrals.
 9                 One thing we do know from 2010, 
10          roughly when the recovery from the '08 
11          recession really started to take hold, is 
12          that most of upstate has done -- has had very 
13          little growth, and most parts of upstate are 
14          maybe just about at or not quite at their 
15          employment levels pre-'08 or 2008 -- you 
16          know, pre-recession.
17                 So we know that much of the geographic 
18          area of the state is still struggling to recover 
19          from the recession.  To the extent to which we 
20          have incentives that, you know, are not honored, 
21          we see that as, you know, taking away from our 
22          efforts.
23                 CHAIRWOMAN YOUNG:  Right.  And you 
24          recall -- probably painfully, as do I -- 

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 1          during those years in '09 and '10, there were 
 2          123 new taxes imposed, $14 billion in tax 
 3          hikes.  And that had a very serious economic 
 4          drag on the economy across the state.  And as 
 5          you pointed out, upstate still suffers from 
 6          trying to recover from those bad policies.  
 7                 So I appreciate that input.  Thank 
 8          you.
 9                 CHAIRWOMAN WEINSTEIN:  Thank you for 
10          being here.  I think that's it for questions 
11          for you.
12                 Next we have Empire Center for Public 
13          Policy, Edmund McMahon, research director.
14                 MR. McMAHON:  Well, good afternoon, 
15          Assemblymember Weinstein, Senator Young, 
16          Assemblymember Oaks, Senator Krueger, and 
17          other members.  Thank you very much for this 
18          opportunity to testify here today.
19                 I'll obviously just summarize what's 
20          in my testimony, if I may.
21                 To begin with, I think the budget 
22          process, especially on the revenue side, has 
23          been overshadowed by the issues arising from 
24          passage of the Tax Cuts and Jobs Act, which 

                                                                   159
 1          as you know is the most significant federal 
 2          tax overhaul in 31 years.  Unfortunately, I 
 3          think so far the Executive Budget barely 
 4          addresses most of the issues arising from 
 5          those federal tax changes, and I think in 
 6          some respects it adds to the state's 
 7          competitive challenges, in some cases with 
 8          further tax increases.
 9                 For example, I refer to the 
10          $140 million that's supposed to be raised 
11          from what the budget describes as a windfall 
12          profit fee on for-profit health insurers, 
13          which I point out will add to the 
14          $5.7 billion of taxes and fees we already 
15          impose on healthcare.
16                 Now, as my Empire Center colleague 
17          Bill Hammond has written, the proposal raises 
18          fairness issues, since it appears to target 
19          only fully insured health plans, which are 
20          sold mainly to individuals and small 
21          businesses, which are the segments most 
22          likely to drop coverage over affordability 
23          issues.  I'm sure Bill will get into this in 
24          more detail when he testifies at the joint 

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 1          hearing on health issues.  
 2                 But suffice it to say this isn't just, 
 3          in our opinion, wrong-headed health policy, 
 4          it's also inequitable and counterproductive 
 5          tax policy.  And I'm referring to the general 
 6          principle or the notion that you can have a 
 7          precedent or that the state should claw back 
 8          the federal tax savings from any business 
 9          arbitrarily deemed to have collected a 
10          so-called windfall from Washington.  This 
11          undermines a key purpose of the federal 
12          corporate tax reform, which is to encourage 
13          businesses to increase pay, hire more 
14          workers, and expand capital investments.  
15                 Now, reasonable people can disagree on 
16          the extent to which they think that will 
17          actually happen as a result of the tax bill.  
18          But the more you do these windfall grabs, the 
19          less you will get, for sure.  
20                 I won't dwell too much on other 
21          issues, although I do want to digress into 
22          one other issue, which is all the discussion 
23          about the tax credits that have been 
24          suspended.  If you take those tax credits at 

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 1          face value, which is a whole other subject, 
 2          really what the policy that the Governor is 
 3          proposing says is that low-income housing, 
 4          brownfield redevelopment, historic 
 5          preservation and some other things are a 
 6          whole lot less important than motion picture, 
 7          TV and commercial production.  
 8                 I can point you to studies pointing 
 9          out that it's actually questionable whether 
10          that generates jobs or subsidizes jobs, that 
11          latter credit -- which is far bigger than any 
12          of the other credits.  And so I think that at 
13          the very least it's inconsistent at carving 
14          out a special status, for reasons that to me 
15          remain unclear.  
16                 But putting that aside, rather than 
17          focus on the tax changes in the budget, I'd 
18          like to use my time available to focus on the 
19          state's response to the federal tax law and 
20          on the real implications of the law.  
21                 I think it's important to really face 
22          up to the actual impact of the law, as 
23          opposed to the broad statements that have 
24          been made in recent months during the 

                                                                   162
 1          political dispute over whether it would be 
 2          enacted, and that is most New Yorkers will be 
 3          paying lower federal taxes under the new 
 4          federal tax law.  
 5                 I'm not endorsing the law as a whole, 
 6          or the process that produced it, much less 
 7          the cap on SALT, but that's a fact.  And that 
 8          includes people who are among the itemizers 
 9          who had more than $10,000 in state and local 
10          property taxes to deduct.  A lot of those 
11          people -- in fact, probably most of them -- 
12          will also see their federal taxes cut.  
13                 And if you overstate the problem and 
14          are far too broad in the way you think this 
15          affects New Yorkers, you're going to be 
16          mistaken in your response to it.  So I think 
17          it's really important to recognize what's 
18          actually happening here.  
19                 The largest identifiable group of 
20          New Yorkers who as a group have a problem -- 
21          at least the majority of the members in that 
22          group -- or who are losing most from the cap 
23          on state and local tax deductions, are your 
24          highest earners, the top 1 percent, people 

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 1          who live in New York who earn over a million 
 2          dollars a year, who generate over 40 percent 
 3          of the personal income tax, which is the 
 4          state's largest tax.  
 5                 They claimed average state and local 
 6          tax deductions of $500,000 in 2015.  Which 
 7          means, doing the math, that they've lost 
 8          98 percent of the tax deduction.  They 
 9          basically are now -- people who live in 
10          New York City who don't -- depending on their 
11          tax status, but I think the majority, for the 
12          most part, are facing a higher effective 
13          marginal rate, all in, federal, state and 
14          local, than they paid before the tax change.  
15          In isolation, the state and local rate, which 
16          you can think of as the net tax price of 
17          being in New York, is going to be higher than 
18          it's ever been in history, considerably 
19          higher.  
20                 So this is uncharted territory, and 
21          this obviously increases the stakes for 
22          New York of maintaining its current tax 
23          policy without careful consideration of what 
24          the federal law has done.  We can discuss 

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 1          that more if you'd like to.  I would say the 
 2          recent statistics, building on what I cited 
 3          to you last year, is that there's been a 
 4          significant growth in the category of 
 5          nonresident payers who make multi-million- 
 6          dollar incomes; that is, people who don't 
 7          live in New York who have some business tie 
 8          here, so that they're in our tax base, but 
 9          who do not pay taxes on the bulk of their 
10          income to New York because they have moved 
11          elsewhere.  
12                 There's a demographic factor here that 
13          we can't control with just our tax policy.  A 
14          lot of people who are wealthy happen to be 
15          older, and they're baby boomers.  And they're 
16          thinking of or planning to retire or are 
17          retiring, and naturally a lot of them are 
18          going to leave no matter what.  
19                 What you've done -- what the current 
20          tax policy does and what the federal tax 
21          policy does is for anybody who's on the curb, 
22          it pushes them into the street and on their 
23          way out faster, because there's that much 
24          bigger a tax bite on their income.  

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 1                 Especially, remember, if you're 
 2          dependent on capital gains income, which is 
 3          one-third of the income of people making over 
 4          a million dollars who live in New York, and 
 5          more among nonresidents, one-third of your 
 6          total tax, if you live in New York City, is 
 7          state and local tax.  You can cut your tax by 
 8          one-third if you simply leave.  
 9                 And if that's your retirement income, 
10          high as it is by most of our standards, 
11          that's something you have to consider.  So we 
12          need to be aware of that.  
13                 Now, we know that there's a big tax 
14          cut here for C-corps, although many of them 
15          had lower effective rates before certain 
16          loopholes were closed.  There's also cuts for 
17          pass-through entities.  But if you've 
18          talked -- you already talked to witnesses 
19          here, a lot of people in the tax field will 
20          tell you that this is very confusing.  The 
21          federal tax law has got a lot of ambiguities.  
22          There's a lot of questions to be answered.  
23          It's a work in progress.  
24                 And I would make, parenthetically, a 

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 1          note -- I won't go into it -- there's a 
 2          technical issue regarding the deductibility 
 3          of UBT payments to New York City that I think 
 4          you need to clarify also.  That's pretty 
 5          important.  And that's -- I won't get into 
 6          that here, I can give you some paperwork on 
 7          that later just for your own information.  
 8          Assuming that the UBT is still deductible -- 
 9          that may not be the case -- maybe it will 
10          work into the post-budget discussions, I 
11          don't know.  
12                 In the meantime, your top priority 
13          should be to decouple from federal law where 
14          necessary to prevent automatic tax hikes.  As 
15          noted, the Senate has passed a bill on this.  
16          The budget director just stated that that's 
17          going to be addressed in the 30-day 
18          amendments.  Okay, that's a good thing.  
19                 It's still puzzling to me that this 
20          was not included in the budget to begin with, 
21          because the budget did decouple from a single 
22          portion of the new federal tax law.  One and 
23          only one provision of the new federal tax law 
24          is specifically decoupled from New York law 

                                                                   167
 1          in the budget, and that's Part P of the 
 2          revenue bill, and that is the child credit.  
 3          The federal child credit is being doubled and 
 4          eligibility for the child credit is being 
 5          expanded to higher income ranges.  
 6                 With no further change, that would 
 7          result in a significant increase in the 
 8          Empire State Child Credit, benefiting many 
 9          hundreds of thousands of families who now 
10          claim it.  The Governor's budget goes out of 
11          its way to make sure that doesn't happen, by 
12          decoupling.  
13                 I would point out to you, you may want 
14          to reconsider why you should reject out of 
15          hand one of the federal tax changes that 
16          would clearly reduce state taxes for all 
17          New Yorkers who are in this category.  You 
18          could, for instance, keep linked to the 
19          federal law.  You could allow the Empire 
20          State Child Credit to be doubled, from $333 
21          maximum to $666, and be available at higher 
22          income ranges, and you could more than pay 
23          for it.  
24                 How?  You could repeal the sales tax 

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 1          exemption on clothing purchases under $110, 
 2          which was initially boosted mainly by the 
 3          State Assembly as a way to help working 
 4          families.  A good motive, but which is not 
 5          well-targeted and which presently also serves 
 6          simply to reduce sales taxes on t-shirts for 
 7          tourists and other items.  A working family, 
 8          especially a lower-income family, would get a 
 9          lot more out of a $333 per child boost in the 
10          child credit than from the continuation of 
11          the sales tax exemption on clothing, under 
12          smaller clothing purchases.  
13                 We've also decoupled already from 
14          federal law on estate tax.  That was already 
15          written into the law.  But the feds have 
16          reduced their estate tax by raising the 
17          exemption, which further isolates us in a 
18          competitive sense, because we're now only one 
19          of a dozen states with an estate tax.  
20                 And we have a rate cliff in our law 
21          that's complicated -- I could explain to you, 
22          but it basically makes our tax rate on the 
23          smallest estates still subject to the law, 
24          subject to a higher state rate than a federal 

                                                                   169
 1          rate.  
 2                 Now, finally, and most importantly, 
 3          the Governor said he's looking for ways to 
 4          thwart the SALT cap, and Budget director 
 5          Mujica discussed this at length in his 
 6          testimony.  I would suggest to you that the 
 7          Tax Department report -- the real bottom 
 8          line, if you read that report, is that going 
 9          to a payroll tax would be unworkable and 
10          undesirable, for a whole raft of reasons.  
11          And as I mentioned earlier, the premise 
12          behind that is that you need to do a broad 
13          switch to a payroll tax because otherwise the 
14          federal tax law will have a devastating and 
15          massive increase on New York.  The problem 
16          is, that's not true, and thus you shouldn't 
17          do it.  
18                 He's also indicated they'll explore 
19          the charitable foundation possibility as a 
20          way to preserve tax-exempt contributions in 
21          lieu of taxes.  You're supposed to get some 
22          proposals in the 30-day period.  
23                 I would make three suggestions.  
24          First, don't rush.  Don't be rushed into 

                                                                   170
 1          jamming this into the budget process.  It's 
 2          going to be extremely complicated with lots 
 3          of unintended and unforeseen consequences.  
 4          There's no need to do this as part of the 
 5          budget.  
 6                 Second, don't add to the state's tax 
 7          burden on any individual or employer.  
 8                 Third, don't create new platforms or 
 9          vehicles for higher taxes in the future.  
10                 I'll end with some good news.  I think 
11          the Legislature can pat itself on the back 
12          for this.  Two steps you've taken in the last 
13          seven years could have been done in 
14          anticipation of the loss of the SALT 
15          deduction.  And I'm referring to the property 
16          tax cap outside New York City, which is 
17          saving property owners billions of dollars a 
18          year that they otherwise would have added to 
19          the cost, the net cost, of the loss of the 
20          SALT cap.  
21                 Secondly is that multiyear personal 
22          income tax cut, which is beginning to phase 
23          in this year.  In fact, because of the way 
24          it's designed, it will deliver the biggest 

                                                                   171
 1          savings to the people who are most likely to 
 2          receive a minimal federal tax cut and perhaps 
 3          a small federal tax increase because of the 
 4          SALT loss.  And I'm referring to the 
 5          six-figure middle class of the New York 
 6          suburbs -- and in New York City, but 
 7          particularly those with high property taxes.  
 8          They're going to get the biggest tax cuts 
 9          under that program.  
10                 So it's important to make the property 
11          tax cap permanent and to follow through and 
12          push through on those tax cuts.  And those 
13          are the two single -- those are the two most 
14          important things, the two highest priorities 
15          for coping with the impact of federal tax 
16          reform.  
17                 Thank you.
18                 CHAIRWOMAN WEINSTEIN:  Thank you.
19                 Senator Young.
20                 CHAIRWOMAN YOUNG:  Yes.  First of all, 
21          E.J., thank you for being here.  You're 
22          always a fountain of information and we truly 
23          appreciate that.
24                 I want to thank you for bringing up a 

                                                                   172
 1          couple of things.  And, you know, usually the 
 2          Tax hearing can be somewhat of a yawner, but 
 3          this year there are so many tax policy 
 4          changes that are proposed that it is a little 
 5          bit more exciting.
 6                 But thank you for bringing up the 
 7          windfall tax, because I meant to bring that 
 8          up.  And there are a lot of issues that you 
 9          pointed out -- it's arbitrary, it's just on 
10          one segment of the economy, health insurers.  
11          Wouldn't it make more sense to have some kind 
12          of effort to have health insurance premiums 
13          go down instead of collecting this windfall 
14          tax?  Because people every day are struggling 
15          paying for their health insurance.  And it's 
16          been a real problem, as we know, and premiums 
17          have escalated, under Obamacare.
18                 Could you address that a little bit 
19          more deeply?
20                 MR. McMAHON:  Well, I think -- and I 
21          would defer a little bit, more than a little, 
22          to Bill on this, who's followed it much more 
23          closely; in fact, has written about it within 
24          the last day or so, about the very issue 

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 1          you're raising.  
 2                 But I would point out there is a -- 
 3          the part of the health insurance marketplace 
 4          we're talking about is in fact competitive, 
 5          that the normal process would lead to -- when 
 6          companies have more breathing room like this, 
 7          is to make them more aggressive in holding 
 8          down rates.  
 9                 We also have a regulatory process 
10          which was cited here earlier, including a 
11          process in which medical loss ratios are part 
12          of the determination in setting premiums.  
13                 All of those things are influenced in 
14          different ways by what the tax burden is.  
15          And I think that if you simply let the 
16          process and the marketplace take care of 
17          itself, that the result of lower taxes on 
18          for-profit health insurers in this segment, 
19          this area of the market, is going to tend to 
20          bring down premiums naturally.  
21                 Now, again, I would prefer to defer to 
22          Bill on more of that, because he's really 
23          done a lot of thinking about and research in 
24          the area.  But that would be my inclination 

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 1          or suggestion to you.
 2                 CHAIRWOMAN YOUNG:  And another issue I 
 3          wanted to bring up was the historic 
 4          preservation tax credit.  You have a good 
 5          sense as to how that's had a positive impact 
 6          on the economy in New York.
 7                 MR. McMAHON:  Well, I would think, 
 8          without endorsing all these tax credits -- 
 9          because there is a school of thought, 
10          including in fact a report the Senate itself 
11          released a few years ago, as well as the 
12          Solomon Commission report, that would suggest 
13          that a lot of the credits should go by the 
14          wayside and we should seek to have a broader 
15          tax base and lower rates.  Often -- there's a 
16          lot of thought among fiscal economists and 
17          tax experts on that issue, of whether tax 
18          credits simply proliferate and are not as 
19          effective as they're advertised.
20                 However, I would say -- so without 
21          necessarily endorsing any of these programs, 
22          some of these programs are -- involve 
23          incentivizing investments or development that 
24          arguably would not occur in parts of the 

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 1          state where there's very little natural 
 2          market-rate development occurring.  And we're 
 3          talking about largely upstate New York.  
 4          Whether that's a full justification for the 
 5          program or not is another issue.
 6                 But I would say there are more 
 7          marginal investments affected by, and perhaps 
 8          potentially stalled by the delays in the 
 9          credit, or the growing feeling that the 
10          credits are not actually guaranteed, than if 
11          you look at the burgeoning, very wealthy 
12          motion picture, TV, and commercial production 
13          industry in New York City, which is -- where 
14          you basically are giving a direct, hefty 
15          subsidy to companies for doing something that 
16          in a lot of cases they'd be doing anyway.
17                 And all the assumptions about job 
18          creation related to that film credit and TV 
19          and commercial production credit, all assume 
20          that nothing would be happening in the 
21          absence of the credit.  Which is, in a word, 
22          ridiculous.  
23                 And if there was ever an argument for 
24          that credit, it was before the added 

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 1          infrastructure was built up, and the 
 2          production capabilities of the entertainment 
 3          industry in and around New York City early 
 4          in -- in the early 2000s, at least.  And that 
 5          if there's ever been a time to pause that 
 6          credit, this is that time.
 7                 The argument would be made, Well, 
 8          people have lined up for this, they've made 
 9          plans, and they're starting productions based 
10          on having the credit.  But as you pointed 
11          out, there are also people who have made 
12          plans for other types of investments based on 
13          the availability of the other credits that 
14          are now going to be postponed.
15                 So again, without endorsing any of 
16          them in particular, I think it's really 
17          questionable -- I don't think the case has 
18          been made for delaying these credits and not 
19          the one that's bigger than almost any of 
20          them.  I'm not sure whether Excelsior rivals 
21          it or not in size, but ...
22                 CHAIRWOMAN YOUNG:  Thank you.
23                 I was glad to hear that you brought up 
24          the property tax cap and its positive impact 

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 1          on taxpayers and, you know, upstate, 
 2          Long Island and Westchester, other suburban 
 3          communities.
 4                 I asked Mayor de Blasio when he was in 
 5          the other day about a property tax cap in 
 6          New York, and he continues to resist it.  
 7          What are your thoughts on that?
 8                 MR. McMAHON:  I think that New York 
 9          City becomes more complicated because New 
10          York City has that four-class system which is 
11          rife with increasingly bizarre inequities.  
12          There's a lot of criticism of the New York 
13          City property tax system.  I think that if 
14          you simply imposed a cap on that system, and 
15          did nothing else, you might actually worsen 
16          some of the inequities, because it's so 
17          complicated.  
18                 I think in the long run it would be 
19          good to cap property taxes in New York as 
20          well.  I would point out that New York City 
21          has one element of a property tax cap in 
22          place.  There's actually a limit on property 
23          taxes in New York, I think constitutionally, 
24          or in the city charter, or both, I forget 

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 1          which.  But the property values in New York 
 2          are so high, it isn't actually triggered.
 3                 So I think that it would be a good 
 4          thing in the city.  However, I think that it 
 5          requires more careful study than simply going 
 6          ahead and doing it because there's so much 
 7          reform needed in the city's property tax 
 8          system -- and for that matter, as I know 
 9          Assemblywoman Galef would agree, in the 
10          property tax systems of much of the state, 
11          especially downstate counties, Nassau and 
12          Westchester.
13                 So I think the city is a special case, 
14          but I do think ultimately that a tax cap in 
15          the city should be worked into discussions of 
16          needed other property tax reforms in the 
17          city.
18                 CHAIRWOMAN YOUNG:  Exactly.
19                 So the Executive Budget -- and I 
20          brought this up to Director Mujica -- but it 
21          contains a proposal to close a so-called 
22          carried interest loophole by adding a 
23          17 percent fairness fee to certain 
24          compensation earned by hedge fund managers.  

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 1          And I know you're aware of this.  It depends 
 2          on other states passing a very similar plan.  
 3          What are your thoughts on that particular 
 4          proposal?
 5                 MR. McMAHON:  Well, that proposal is 
 6          kind of unique in the sense that I've never 
 7          seen anything that was so analogous to, I 
 8          don't know, a hologram or just a pure symbol.  
 9          That tax proposal, assuming that four other 
10          states will do something that at least two of 
11          them would never do, is intended for purely 
12          political posturing purposes, I daresay.  
13          It's not going to happen, and thus it's easy 
14          to propose.
15                 But secondly, even if -- in principle, 
16          that tax is based on the judgement that the 
17          carried interest loophole needs to be 
18          addressed by states, when it's actually a 
19          federal-state issue, and that we're going to 
20          take it into our own hands to impose a 
21          17 percent punitive surcharge as a fee on the 
22          incomes of people in certain types of -- 
23          certain types of fund managers, mainly, who 
24          claim the carried-interest treatment of their 

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 1          income.
 2                 Now, I don't -- frankly, the -- I 
 3          think that there's a strong case to be made 
 4          for saying that carried interest should be 
 5          treated as ordinary income.  The difficulty 
 6          in addressing it as a federal matter is in 
 7          distinguishing between those people for whom 
 8          it's clearly really a form of compensation 
 9          and those people in industries for whom it 
10          represents money at risk.
11                 But basically we're talking about a 
12          federal issue here and a proposal that I 
13          think is being mounted mainly in order to 
14          spotlight or to stigmatize people in certain 
15          industries for other purposes.  
16                 I'd point out one irony here.  This is 
17          repeatedly identified with hedge funds, 
18          especially since the enactment of the federal 
19          tax reform bill.  There's virtually -- very 
20          few, if any, hedge fund partners are going to 
21          be claiming carried-interest treatment of 
22          their income.  The carrying period has been 
23          increased from one to three years.  It's 
24          mainly private equity funds and other types 

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 1          of fund managers.  
 2                 And again, I think a strong case can 
 3          be made for treating it as ordinary income.  
 4          The president said he wanted to treat it as 
 5          ordinary income.  His opponents in the 
 6          Republican presidential primaries wanted to 
 7          treat it as ordinary income.  Many Democrats 
 8          in Congress, as well as some Republicans, 
 9          wanted that done.  It didn't happen.  That's 
10          one of those Washington issues.
11                 But it's not an issue we can or should 
12          address on a state level, and I think that's 
13          another bad precedent.  It's akin to the 
14          windfall notion, the notion that you saved a 
15          lot in federal tax, you got a windfall, we'll 
16          take it.  This is a different issue.  We are 
17          basically putting ourselves in the position 
18          of saying:  The feds don't tax you enough, we 
19          think they should tax you at 17 percentage 
20          points higher, so we'll do it.
21                 Note, by the way, the reason it 
22          requires four other states to act is because 
23          the promoters of this idea are aware that if 
24          one state did it, you would in fact have that 

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 1          industry essentially vacate the premises.  
 2          And the assumption that five states doing it 
 3          won't have an effect on those five states 
 4          assumes that the people affected don't own 
 5          maps.
 6                 And I would just say that if -- and by 
 7          the way, in a federal context, the revenue 
 8          involved is not even that large.  Which is 
 9          not an argument against doing it, but I think 
10          that it's kind of a pointless thing for 
11          anything other than a political reason.
12                 CHAIRWOMAN YOUNG:  But as you point 
13          out, so the groups that would be impacted by 
14          this carried-interest loophole tax, and you 
15          just said it, those are among the groups that 
16          have put the accelerator to the floor in 
17          leaving New York State.  And so this would 
18          actually make that problem worse, right?
19                 MR. McMAHON:  Well, I wouldn't say 
20          that -- look, I wouldn't say that those 
21          particular groups are like leaving the state 
22          in droves or anything.  If they find it 
23          beneficial to be in New York now, despite our 
24          tax rate even before federal tax reform, even 

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 1          federal tax reform won't necessarily change 
 2          that.  You've seen individual fund managers 
 3          in some states make headlines by leaving and 
 4          actually materially affecting taxes --
 5                 CHAIRWOMAN YOUNG:  Right.  Florida 
 6          especially.
 7                 MR. McMAHON:  -- like David Tepper 
 8          and -- and there have been people in New York 
 9          who you could name who have gone to Florida, 
10          extremely wealthy people, without making 
11          headlines or announcing their reasons.  
12                 There's a lot of that industry still 
13          left in New York.  There's also a lot of it 
14          still left in Connecticut, which would feel 
15          their absence more keenly.  
16                 But again, I would point out that for 
17          now, that is a federal issue.  The whole 
18          federal tax scene is not settled.  This is 
19          just the beginning of a new round, a 
20          multiyear round of tax reform at the federal 
21          level.  And this is not something we can or 
22          should take into our own hands.  This is 
23          purely symbolic.  The signal it sends I don't 
24          think is positive.  Why would we want to give 

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 1          another push to anybody who pays, 
 2          disproportionately, a heavy share of our 
 3          state taxes?  That would be the final 
 4          question I'd raise about it.
 5                 CHAIRWOMAN YOUNG:  Thank you.
 6                 CHAIRWOMAN WEINSTEIN:  Assemblywoman 
 7          Galef.
 8                 ASSEMBLYWOMAN GALEF:  Mr. McMahon, I 
 9          just have a question.  
10                 You have come forward and said that 
11          you don't think the payroll option is 
12          workable.  Could you give us more of your 
13          opinion on the charitable foundation aspect?
14                 MR. McMAHON:  I think if you could get 
15          away with it, in the sense of having the IRS 
16          sit still for it, you should -- there's no 
17          harm in trying.  I think the problem would be 
18          that there's a real question of whether the 
19          IRS, under its long-standing approach to 
20          defining what's charitable and not charitable 
21          giving, would stand for it.  
22                 I'm aware of the precedent.  As you 
23          probably know, for some reason the IRS has 
24          allowed the State of Arizona to run four or 

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 1          five different charitable funds to which they 
 2          let people -- for which people collect 
 3          credits for their contributions.  And in fact 
 4          the Times had an article, the New York Times, 
 5          a few years ago pointing out how under 
 6          certain circumstances one could even make 
 7          money by balancing one's contributions with 
 8          one's credits.
 9                 The IRS has allowed that, oddly 
10          enough.  And the proponents of this idea say, 
11          We'll just do it on a bigger scale.  Again, 
12          and as the -- as described, which would be, 
13          for instance, somebody would give money to 
14          the New York Education Foundation and they 
15          would receive an almost dollar-for-dollar 
16          credit on their income tax for what they gave 
17          to that foundation, and thus -- and they 
18          would be able to deduct that contribution on 
19          their federal income tax.  That's the theory.
20                 I think the problem is that, again, if 
21          this was attempted on any large scale by 
22          New York -- for instance, New York and 
23          California, where it's being talked about, I 
24          think the IRS would almost out of hand reject 

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 1          it on the basis of their doctrine that you 
 2          can't receive a personal gain from a 
 3          charitable contribution.  
 4                 That's why, as all of us know, if we 
 5          bid in a charity auction or win a prize from 
 6          a charity drawing, you can't claim the whole 
 7          cost of what you bid on or bought, you can 
 8          only claim a deduction for anything you 
 9          overpaid, in effect.  If you get something, 
10          you can't claim a deduction for it.  That's 
11          the theory, that it has to be voluntary and 
12          sort of a free-will offering.
13                 So I think it would ultimately make 
14          for interesting litigation.  If we tried it, 
15          it could be structured in a way where the 
16          taxpayers involved would be held harmless.  
17          In other words, say the IRS strikes it down, 
18          there's litigation, and the litigation 
19          upholds the IRS.  The people who tried to 
20          claim the contribution could be kind of held 
21          harmless by the state, ultimately.  Frankly, 
22          the whole thing would probably be enjoined 
23          anyway.
24                 But -- so again, my bottom line is I 

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 1          think it's worth trying.  I don't think you 
 2          want to start at the local level up and 
 3          encourage school districts around the state 
 4          to go through the effort and expense of 
 5          creating private foundations here, there, and 
 6          everywhere.  Creating a private charitable 
 7          foundation is a lot of work.  I think that 
 8          there will be efforts to test it, and we'll 
 9          see what happens.  So ...
10                 ASSEMBLYWOMAN GALEF:  Thank you.
11                 CHAIRWOMAN YOUNG:  Senator Krueger.
12                 SENATOR KRUEGER:  Thank you.
13                 Thank you very much for your 
14          testimony, E.J.
15                 So I think you make a legitimate 
16          argument that we're still not clear what the 
17          federal tax reform package will mean for us 
18          because they haven't even written regulations 
19          and it's not clear that anyone who voted for 
20          it knew what was in it either. 
21                 So I just want to just double-check 
22          that I'm hearing you right.  You're not 
23          necessarily opposed to any number of the 
24          proposed responses, you're just making the 

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 1          argument we don't know enough yet and we 
 2          should have facts before we move?  Because 
 3          your charts in your testimony actually show 
 4          that New Yorkers could be seeing an increase 
 5          in their taxes despite the advertising.
 6                 MR. McMAHON:  Right.  Right.  It's 
 7          people mainly in the top bracket who would be 
 8          seeing it.  
 9                 And even that would depend on, well, 
10          were you paying the AMT -- the wealthiest 
11          tend not to pay the AMT, it's the 
12          near-wealthy who pay the AMT -- what's your 
13          household size, are you in a pass-through.  
14                 The big uncertain questions are the 
15          pass-through entities.  The most lucrative 
16          pass-through entities that you can think 
17          of -- think of investment partnerships, law.  
18          Right?  Those two in particular, they are not 
19          eligible for the pass-through tax cut.
20                 On the other hand, a whole other 
21          provision makes the people who by New York 
22          standards are the lower-paid junior partners 
23          in those entities eligible for some tax cut, 
24          sorta.  And then there's all sorts of other 

                                                                   189
 1          questions.  So we don't know those questions 
 2          about -- the answers to those questions about 
 3          those people.  And won't know them, in some 
 4          cases, for some time to come.  And every 
 5          time -- surely you've talked to people about 
 6          this.  There's many, many questions 
 7          surrounding the pass-through entity piece in 
 8          particular.  
 9                 I'd also point out the value of a 
10          federal tax deduction is directly related to 
11          the tax rate that applies to what's being 
12          deducted.  The tax rate that -- the deduction 
13          that people are losing basically was the 
14          equivalent of a 40 percent discount.  The 
15          C-corp rate is now going to be 21 percent.  
16          That means the deduction you could take as a 
17          C-corp on a payroll tax is barely half of the 
18          deduction that could be taken in the top 
19          bracket.  And in other brackets, it's 
20          somewhat different.
21                 Last but not least, when we talk about 
22          payroll taxes on any kind of broad basis that 
23          would affect any more than a handful of 
24          New Yorkers on an optional basis -- which I 

                                                                   190
 1          think is probably the way it should be 
 2          structured, if possible -- that assumes that 
 3          the vast majority of New Yorkers are somehow 
 4          losing under the tax plan, when in fact most 
 5          of them already are seeing some uptick in 
 6          their weekly withholding -- and not a 
 7          buck-fifty.  Fifty, sixty bucks for somebody 
 8          in that median category.  Now, that's not a 
 9          king's ransom, obviously.  But some people 
10          who are in the core median family range for 
11          upstate New York are going to get very 
12          significant tax cuts.
13                 Why should we overhaul and disrupt -- 
14          and the key word is "disrupt" -- disrupt our 
15          entire system of taxation on a theory or 
16          based on a premise that's just not true?  It 
17          doesn't broadly affect -- why would we do a 
18          broad disruption of our tax system as a 
19          response to federal tax changes that do not 
20          affect a broad swath of New Yorkers, in fact, 
21          in a negative way? 
22                 And again, I'm not a fan of the 
23          federal tax cut as it's designed.  I think 
24          that it was a bad process.  I think it was a 

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 1          missed opportunity to do better.  And I think 
 2          there were arguments against repealing SALT 
 3          actually on conservative grounds.  But 
 4          that's -- what's done is done.  And for now, 
 5          what we do should be shaped by reality and 
 6          not by understandably broad, you know, 
 7          partisan takes on what happened.
 8                 SENATOR KRUEGER:  And I think you and 
 9          I agree that the people who will fall into 
10          this category are the higher-income people, 
11          the people with high property tax, high 
12          deductions that they get capped at $10,000.
13                 MR. McMAHON:  Right.
14                 SENATOR KRUEGER:  But you in your 
15          testimony for many years have talked about 
16          concerns that we don't have all these people 
17          leave New York.
18                 MR. McMAHON:  Right.
19                 SENATOR KRUEGER:  Right?
20                 MR. McMAHON:  Right.
21                 SENATOR KRUEGER:  So we should try to 
22          do something so that they stay in New York.
23                 MR. McMAHON:  Right.  The problem will 
24          be -- that's why I -- the idea of the 

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 1          foundation, if you can do it.  Because here's 
 2          your problem.  In the highest income ranges, 
 3          and now we're talking about people making a 
 4          million -- the income millionaires, which are 
 5          basically now just about synonymous with the 
 6          top 1 percent who are that 40 percent of the 
 7          income tax.
 8                 In that income range, one-third, on 
 9          average, of the income of state residents in 
10          that bracket is wages and salaries.  Another 
11          19 percent is sort of business income.  But 
12          one-third -- actually 37 percent, if you 
13          count qualified dividends -- is investment 
14          income, capital gains and qualified 
15          dividends.  They're untouched by any scheme 
16          for converting the income tax into a payroll 
17          tax, or an entity-level tax.
18                 SENATOR KRUEGER:  Although as you 
19          also, I think, raised, because of the new 
20          pass-through options, you may see a whole 
21          universe of individual taxpayers shifting to 
22          being corporations for their pay.
23                 MR. McMAHON:  You could, but except 
24          those people, the really -- now we're talking 

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 1          about the rarified, the seven, eight, 
 2          nine-figure earners, quite a few of whom 
 3          actually are salary and bonus dependent in 
 4          mid-career.  They're not getting the 
 5          pass-through cut.  Their entity may be 
 6          getting the pass-through cut.  
 7                 But as I mentioned earlier, 
 8          specifically disqualified from the 
 9          pass-through cut are investment partnerships 
10          and law firms, medical partnerships.  There's 
11          a whole other provision that has the more 
12          junior partners or participants in those 
13          partnerships, if they've got a share, they 
14          get the discount.  So some people who make -- 
15          if married, joint -- under $310,000 a year.
16                 But by the standards of the most 
17          lucrative, you know, big-time New York City 
18          partnerships in those businesses, those are 
19          the little people, in effect.  Not little by 
20          most of our standards.  But when we're 
21          talking about income millionaires, they're 
22          not directly benefiting from the direct 
23          business tax cut as much.  So it's very 
24          uneven.

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 1                 And I do think if we could find a way 
 2          to create an optional or elective structure 
 3          that allows entities to kind of opt into a 
 4          structure under which they find it beneficial 
 5          to restructure the basis of compensation, and 
 6          find it beneficial to pay a new state 
 7          entity-level tax on compensation that is 
 8          therefore, under existing federal law, 
 9          clearly going to be deductible, well, that's 
10          worth taking a shot at.  But that's not the 
11          kind of broad thing that has been discussed.
12                 SENATOR KRUEGER:  Thank you.  Thank 
13          you.
14                 CHAIRWOMAN WEINSTEIN:  Thank you for 
15          being here.
16                 MR. McMAHON:  Thank you.
17                 CHAIRWOMAN YOUNG:  Thank you.
18                 CHAIRWOMAN WEINSTEIN:  Next we have 
19          Michael Kink, executive director, Strong 
20          Economy for All Coalition. 
21                 MR. KINK:  Thank you, Senator Young, 
22          Madam Chair Weinstein, members of the 
23          Legislature.  
24                 I'll also rely on submitting my 

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 1          written testimony and giving an overview and 
 2          some thoughts.  And like other folks who have 
 3          been testifying, I'm also going to focus on 
 4          the response to the federal tax plan.
 5                 We do know some of the consequences of 
 6          the federal tax plan.  The federal tax plan 
 7          will make New York's worst-in-the-nation 
 8          inequality even worse.  We have the worst 
 9          income inequality in the country, the biggest 
10          division between the rich and the poor.  
11          Right now, working people and low-income 
12          people in New York are paying too much in 
13          taxes, and extraordinarily wealthy people in 
14          New York are paying too little in taxes.  And 
15          the federal tax bill will make that even 
16          worse.
17                 I think it's right for Governor Cuomo 
18          and the Legislature to think about responses 
19          to the tax bill, and not only in the category 
20          of small changes or gimmicks or stunts that 
21          will help a few people here and there, but in 
22          the big picture.
23                 Families in Ms. Fahy's district will 
24          get enough from the federal tax break to buy 

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 1          a couple of pizzas a month.  Many folks in 
 2          Senator Krueger's district will get enough 
 3          for a luxury car or a yacht or a house, every 
 4          month.  We are talking about trillions of 
 5          dollars that have been helicopter-dropped in 
 6          loads across the Upper East Side of 
 7          Manhattan, areas of TriBeCa and Wall 
 8          Street -- and the rest of the state is not 
 9          going to get the benefit.  
10                 I share many of the concerns you've 
11          raised today, Chair Young, about the upstate 
12          economy, about working people.  
13                 There are things that you can do in 
14          the state response to the federal tax plan 
15          that will increase economic fairness, that 
16          will ask the wealthy to pay their fair share 
17          and that will ensure broader prosperity for 
18          all New Yorkers.  You can close loopholes 
19          that Congress didn't close.  You can take 
20          steps to make sure that New York has a fair 
21          tax system and a more broadly prosperous 
22          economy.
23                 I will start with the carried-interest 
24          loophole.  We were certainly gratified to see 

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 1          Governor Cuomo include it in his budget 
 2          proposal for the first time.  This measure 
 3          has been carried in the Senate by IDC Leader 
 4          Klein, in the Assembly by Mr. Jeffrion Aubry 
 5          and a number of cosponsors.  
 6                 Hedge funds and high-net-worth 
 7          individuals are not leaving our state.  We 
 8          have 63 percent more millionaires right now 
 9          than we did when we passed the millionaire's 
10          tax in 2009.  I'd refer you to some of the 
11          cites in my testimony about ultra-high-net- 
12          worth individuals.  We are gaining 
13          millionaires and multimillionaires and that 
14          rarified category of people that are known as 
15          ultra-high-net-worth individuals.  We saw a 
16          15 percent increase in ultra-high-net-worth 
17          individuals in New York City in just the last 
18          year.
19                 Now, I agree working people are 
20          leaving New York.  Small businesses can often 
21          find it a struggle in New York.  And the 
22          carried-interest loophole is not going to hit 
23          any of those people.  There is not a single 
24          working person that is going to pay a surtax 

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 1          on carried interest.  
 2                 That loophole was something that 
 3          President Trump campaigned on.  He went all 
 4          over the country saying he was going to crack 
 5          down on Wall Street, he was going to close 
 6          the carried-interest loophole.  And the hedge 
 7          fund managers and private equity managers 
 8          that benefit from that loophole spent 
 9          millions of dollars in lobbying and millions 
10          of dollars in campaign contributions and 
11          somehow managed to escape from a large-scale 
12          tax reform with their loophole intact.
13                 This legislation will be introduced in 
14          nine states and the District of Columbia this 
15          year.  It is a response to a glaring inequity 
16          at the federal level.  Hedge fund 
17          billionaires, private equity billionaires are 
18          paying lower tax rates than teachers and 
19          truck drivers.
20                 These businesses are located in places 
21          where they want to be in business.  Anyone 
22          that wants to move to Florida can move right 
23          now.  Some hedge fund managers have moved to 
24          Florida, but they have kept their businesses 

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 1          in New York City and in Greenwich, 
 2          Connecticut, where there is that group of 
 3          skilled professionals, lawyers, investment 
 4          pros, huge computers and mathematicians, 
 5          accountants.  Folks fly in from all over the 
 6          country and all over the world to do their 
 7          business here.  And just like Wall Street 
 8          claimed it would move when the Republican 
 9          Party tried to impose a stock transfer tax in 
10          1905, and then for the next 75 years did just 
11          fine while New York had a tax on Wall Street, 
12          the hedge funds will complain, but they will 
13          stay here and they will make billions.  
14          They're making more and more money, and your 
15          constituents are paying a higher tax rate 
16          than they are in many cases.
17                 I'd like to speak briefly about the 
18          pass-through loophole.  E.J. conveniently 
19          failed to mention the most lucrative 
20          pass-through entities, the real estate 
21          pass-through entities, that just got their 
22          federal taxes cut in half.  Now, if you're 
23          building a skyscraper in Manhattan, you 
24          cannot threaten to move to Florida.  These 

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 1          people, again, while your constituents are 
 2          struggling with affordability, making rent, 
 3          making their mortgage, paying taxes, the 
 4          wealthiest real estate developers in the 
 5          world, who are developing the most valuable 
 6          real estate in the world, just got their 
 7          federal taxes cut in half.
 8                 We have had at times in our state a 
 9          progressive LLC filing fee structure, and 
10          we've had a graduated tax on LLCs where a 
11          small business structured as an LLC, a 
12          dry cleaner or a plumbing contractor, would 
13          not get hit with a high tax.  You could 
14          target a pass-through loophole closure on the 
15          highest value, most wealthy individuals, 
16          people that are shielding their income, and 
17          it would be utterly fair, it would bring in 
18          billions of dollars in revenue for the state, 
19          and it would not hurt our economy one bit, it 
20          would help our economy.
21                 We've spoken before and we'll speak 
22          again in favor of a multimillionaire tax, 
23          taking some brackets for folks that make two 
24          or five or 10 or $100 million a year.  There 

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 1          are ways in which our personal income tax 
 2          brackets reflect an income distribution from 
 3          the late '70s and early '80s that has not 
 4          been adjusted to reflect the explosion in 
 5          wealth at the top end.
 6                 One specific other thing that I'll 
 7          mention is the possibility of, yes, clawing 
 8          back some of those federal tax breaks.  But 
 9          it's a rare moment where Mike Kink and E.J. 
10          McMahon may agree here.  You could do it 
11          based on some standards.  If a company 
12          creates jobs or raises wages in a meaningful 
13          way, bully for them.  
14                 But there are companies that are going 
15          to use their entire federal tax break just to 
16          buy back stock and make wealthy people even 
17          wealthier.  In the last week, Pfizer said 
18          that they were going to get an $11 billion 
19          benefit from this tax bill.  Verizon said 
20          that they were going to get a $3.5 billion to 
21          $4 billion benefit from this tax bill.  
22          Amazon said that they were going to get a 
23          $3.2 billion a year benefit from this tax 
24          bill.  

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 1                 Now, if Pfizer and Verizon and Amazon 
 2          create jobs, great for them.  That's what was 
 3          promised.  But if those companies do what 
 4          CNN Money says they're going to do and become 
 5          part of the businesses that are doing 
 6          $450 billion in stock buy-backs, then state 
 7          lawmakers might want to look at clawing some 
 8          of that money back.  
 9                 Governor Cuomo's proposal targets a 
10          specific sector.  I would argue that it would 
11          be more meaningful to look at companies that 
12          don't create jobs, that don't raise pay, that 
13          don't give significant bonuses, and ask them 
14          to put the money straight back into job 
15          creation -- into schools, into housing, into 
16          dealing with the opioid epidemic, into things 
17          our state needs.
18                 One specific mention on the opioid 
19          epidemic.  We've been working with community 
20          groups and healthcare groups that are 
21          struggling with that on a local basis.  We 
22          support the Governor's proposal for a 
23          prescribing tax that would deal with the 
24          externalities of pharmaceuticals.  I would 

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 1          encourage the Legislature to look at the 
 2          possibility of a windfall profits tax on the 
 3          companies that have made billions of dollars 
 4          over the last decade and a half as this 
 5          epidemic has gained steam.  
 6                 If you look at companies like Purdue 
 7          Pharmaceutical and Insys and you look at some 
 8          of the things that they've done to do an end 
 9          run around FDA concerns, if you look at some 
10          of the sanctions that have been applied to 
11          these companies, you'll see some bad 
12          corporate behavior.  And just like the 
13          federal government put a windfall profits tax 
14          on the oil companies after the price spike in 
15          the '70s and '80s -- and for several years 
16          took in hundreds of billions of dollars to 
17          fund the federal government's essential 
18          needs, based on profits that were gained 
19          explosively -- you're dealing with the 
20          consequences of a serious epidemic here.  And 
21          looking backwards as well as forwards might 
22          be a way to do it in terms of tax policy.
23                 Thank you for your time.
24                 CHAIRWOMAN WEINSTEIN:  Thank you.  

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 1                 CHAIRWOMAN YOUNG:  Thank you, 
 2          Mr. Kink.  I just had a quick question.  
 3                 So there was a lot of time spent this 
 4          morning about the possibility of imposing a 
 5          payroll tax in New York State in response to 
 6          the federal tax changes, but part of that 
 7          would have to be that people's pretax wages 
 8          would have to be reduced.  I was wondering -- 
 9          you know, you represent a large coalition of 
10          union members.  How do you think the members 
11          would feel about such a plan?
12                 MR. KINK:  I think the Legislature 
13          should work with the Governor to insist that 
14          any adjustment that is made for working 
15          people is neutral, that it doesn't hurt 
16          people, it doesn't take money out of their 
17          pocket.
18                 I think it's very clear that this kind 
19          of change can be accomplished.  You may need 
20          a refundable tax credit, an EITC.  I've heard 
21          folks that are claiming it's too complex and 
22          we can't get our heads around it, argue in 
23          favor of incredibly complex harebrained 
24          schemes to give subsidies to companies.  So I 

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 1          disagree with those that say it's too complex 
 2          to work on.  
 3                 I've heard Rob Mujica's presentations.  
 4          I believe that there is an intention to do it 
 5          fairly and right.  There is obviously a role 
 6          for the Legislature to make sure that gets 
 7          done right.
 8                 CHAIRWOMAN YOUNG:  Are the discussions 
 9          that you're having with the administration 
10          exploring, for example, collective bargaining 
11          agreements and people's pensions being 
12          impacted and Social Security being impacted?  
13          You know, are they coming up with fixes?  
14          Because I would assume that those would be 
15          prime concerns of your members.
16                 MR. KINK:  Sure.  I know many of the 
17          members of the Strong Economy for All 
18          Coalition are having those discussions with 
19          the Executive's office on a granular basis, 
20          on a kind of global basis.  They are.
21                 CHAIRWOMAN YOUNG:  Okay, thank you.
22                 Senator Savino.
23                 SENATOR SAVINO:  Thank you.  
24                 Thank you, Michael.  I want to thank 

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 1          you also for the work that you've been doing 
 2          on closing the carried-interest loophole.  As 
 3          you point out in your testimony, Senator 
 4          Klein carries the bill in the Senate and 
 5          Assemblymember Aubry in the Assembly.
 6                 And it's complicated.  People don't 
 7          understand what the carried-interest loophole 
 8          is.  So can you just like briefly explain it?
 9                 MR. KINK:  Sure.  The investment 
10          managers that benefit from the 
11          carried-interest loophole are able to 
12          classify their fees for managing other 
13          people's money as long-term capital gains.  
14          They can't have a long-term capital loss.  
15          We're not talking about people that put in 
16          some of their own money, we're only talking 
17          about the management fee.  
18                 And we've worked with, you know, this 
19          group called the Patriotic Millionaires.  
20          They've submitted testimony today.  Leo 
21          Hindery, one of the most prominent private 
22          equity managers in New York State, has been 
23          up here to argue in favor of this.  They say 
24          it's just unfair.  The classification is 

                                                                   207
 1          wrong.  If you can't have a long-term capital 
 2          loss, why would you be able to take a 
 3          long-term capital gain?  
 4                 Their "two and 20" business model 
 5          takes 2 percent off the top of any money you 
 6          invest, and they keep 20 percent of the 
 7          profits.  And they pay a tax rate on those 
 8          profits that is the same that you would pay 
 9          if they made you money.  
10                 Now, if you put up the money, right or 
11          wrong, we treat long-term capital gains at a 
12          lower tax rate than we might the fees for 
13          creating an investment that gives you 
14          long-term capital gains.  They put their 
15          money in with you, Morris Pearl says it's 
16          like, you know, you get a haircut from your 
17          barber and your barber claims that, you know, 
18          they're part of your business.  
19                 It's a service.  It's an investment 
20          service.  It's not a commingled investment.
21                 And the tax rate on long-term capital 
22          gains is 20 percent.  The long term -- the 
23          income tax rate previously on those levels of 
24          income would have been 39.6 percent, it's now 

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 1          37 percent.  So they basically get their tax 
 2          rate cut in half because they claim that it's 
 3          carried interest.
 4                 SENATOR SAVINO:  And why is it that 
 5          other states -- that it has to be done by a 
 6          certain number of other states, otherwise we 
 7          can't --
 8                 MR. KINK:  Well, our argument, we 
 9          recognize that the sort of claim that these 
10          companies will dance across state lines and 
11          go place to place is part of the discussion 
12          around any kind of tax policy treatment of 
13          businesses and corporations.
14                 As I said before, and as folks have 
15          testified in some of these other states where 
16          the legislation has been introduced, there 
17          are really good business reasons to be in 
18          New York City on Wall Street, in Midtown, in 
19          Greenwich, Connecticut, in Chicago, where 
20          there's a constellation of hedge funds, in 
21          San Francisco or Los Angeles.  There are a 
22          lot of wealthy people.  There are a lot of 
23          specialized business professionals.  And the 
24          sort of culture of investment and 

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 1          money-making is centered there in a way that 
 2          it's -- you know, it's productive to be 
 3          there.  
 4                 These folks have not skipped across 
 5          state lines to flee taxes.  And the regional 
 6          compact was designed to try to encourage all 
 7          of the states in a region to do it at the 
 8          same time.  This year, the same way that 
 9          Governor Cuomo has backed the proposal, the 
10          new governor of New Jersey, Phil Murphy, made 
11          it part of his campaign, he's going to 
12          include it in his budget proposal.
13                 In Connecticut -- I testified before 
14          the Connecticut legislature last year for 
15          half an hour.  We have 40 cosponsors.  
16          There's a vigorous debate.  There's 
17          controversy.  But people recognize that a lot 
18          of folks in Connecticut are struggling or 
19          going backwards, and the hedge funds in 
20          Greenwich are doing great and just minting 
21          money.
22                 And so the question of fairness, you 
23          know, is something that could be done on a 
24          regional basis.  We'll be introducing D.C., 

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 1          Maryland and Virginia bills this year.  So I 
 2          think we're recognizing that's a possibility.
 3                 That said, you know, if we get to a 
 4          serious budget crisis -- I mean, our revenue 
 5          estimate on this is $3.5 billion a year.
 6                 SENATOR SAVINO:  Not chump change.
 7                 MR. KINK:  If you got it, it could 
 8          close most of the budget gap that you're 
 9          talking about.  If you decided to take a deep 
10          breath and say we're going to tax these guys, 
11          you know, you don't have to do the compact.
12                 But I think to be responsible from an 
13          economic development basis, to recognize the 
14          jobs impact and to think about, you know, a 
15          state-level response to a federal policy on a 
16          regional basis, is a sound way to do the 
17          work.  Like we have a regional greenhouse gas 
18          initiative, we could have a regional 
19          carried-interest initiative.
20                 SENATOR SAVINO:  I only have a couple 
21          of seconds left, but I wanted to ask your 
22          opinion and the opinion of the Strong Economy 
23          for All Coalition.  Because you tend to 
24          represent the very people that Senator 

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 1          Alcantara's bill would help.  As you know, 
 2          she has a bill that would eliminate the 
 3          personal income tax for New York City 
 4          residents who earn under a certain income 
 5          level.  Right now, more than half of New York 
 6          City residents earn under $50,000 a year, and 
 7          21 percent of New York City residents are 
 8          living in poverty.
 9                 So she has a proposal that would 
10          eliminate the New York City income tax for 
11          those individuals who are earning, if they're 
12          single, under 32,000; if they're married 
13          filing jointly, under $45,000; head of 
14          household, $32,500.  It would cost the City 
15          of New York $352 million in lost income.  But 
16          as you probably heard the other day, the city 
17          does have a surplus.  But these are the very 
18          people that your organization represents, 
19          through the various groups that are part of 
20          the coalition.  And so again, just wondering, 
21          does the Strong Economy for All have an 
22          opinion on whether or not we should eliminate 
23          city personal income tax for people at those 
24          income levels?  

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 1                 MR. KINK:  Right.  We have not filed a 
 2          memo on that particular bill, and I'll take a 
 3          look at it for sure.  
 4                 We have supported previously that idea 
 5          of reducing taxes for working people and 
 6          lower-income people, paired with a reasonable 
 7          increase on folks who can afford to pay.
 8                 I know now-New York City Comptroller 
 9          Scott Stringer had a proposal like that when 
10          he was in the Assembly, where the two of them 
11          go together.  And I think just from a tax 
12          policy purpose, I would be reluctant to 
13          create a significant hole in revenue.  But 
14          where you can cut taxes on people that are 
15          overburdened and increase taxes on people 
16          that can afford to pay more and that, you 
17          know, are about to get a huge federal tax 
18          break, I think it's good timing if you match 
19          those two together.
20                 SENATOR SAVINO:  Thank you.
21                 SENATOR KRUEGER:  Thank you.
22                 MR. KINK:  Thank you.
23                 CHAIRWOMAN WEINSTEIN:  Thank you.
24                 CHAIRWOMAN YOUNG:  Thank you.

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 1                 CHAIRWOMAN WEINSTEIN:  We've been 
 2          joined at the dais here by Assemblywoman 
 3          Earlene Hooper.  
 4                 And our next testifier, Erin Tobin, 
 5          vice president for policy and preservation, 
 6          Preservation League of New York State.
 7                 MS. TOBIN:  Hi, everyone.  Chairwoman 
 8          Young, Chairwoman Weinstein, and 
 9          distinguished members of the Senate and 
10          Assembly, thank you for the opportunity to 
11          speak with you today.  I'm speaking about the 
12          importance of the New York State Historic Tax 
13          Credit, specifically extending the credit and 
14          decoupling it from the federal historic tax 
15          credit.  
16                 My name is Erin Tobin.  I'm vice 
17          president for policy and preservation with 
18          the Preservation League of New York State, 
19          which is New York's only statewide historic 
20          preservation nonprofit.  And our advocacy was 
21          instrumental in establishment and enhancement 
22          of the New York State Historic Tax Credit 
23          Program, which was established in 2007.  
24                 In 2013, thanks to Governor Cuomo and 

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 1          the New York State Assembly and Senate, this 
 2          program was enhanced and extended through 
 3          2019.
 4                 Since its inception, the New York 
 5          State Historic Tax Credit has proven to be a 
 6          cost-effective economic development and 
 7          historic preservation incentive, and it has 
 8          served as a national model for state historic 
 9          tax credits.  
10                 Thanks to our New York State credit, 
11          New York now leads the country in economic 
12          impacts of historic tax credit-related 
13          investment.  In 2016, federal and state 
14          historic tax credit projects created over 
15          $45 million in New York State taxes, along 
16          with almost $60 million in local taxes and 
17          almost $143 million in federal taxes. 
18          Historic tax credit projects in New York 
19          State generated more local, state, and 
20          federal taxes than any other state in the 
21          country.  In addition, these projects created 
22          almost 14,000 jobs in fiscal year 2016 alone.  
23                 To maintain the effectiveness of the 
24          New York State Historic Tax Credit, and with 

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 1          the understanding that our state faces a 
 2          $4.4 billion deficit in 2019, the 
 3          Preservation League of New York State 
 4          respectfully requests that the Legislature 
 5          consider extending the program through 
 6          December 31, 2024, and decoupling the state 
 7          historic tax credit from the federal historic 
 8          tax credit program.  
 9                 The New York State Historic Tax Credit 
10          has particularly stimulated economic 
11          development in upstate cities, towns and 
12          villages.  We believe that in order to remain 
13          effective and to catalyze economic 
14          development and investment in historic urban 
15          downtowns and neighborhoods, villages, and 
16          rural communities, the program must be 
17          extended this year, not next year.  Extension 
18          in the 2018 budget will ensure that projects 
19          currently in the pipeline for investment and 
20          rehabilitation continue to move forward, with 
21          investor and developer confidence that the 
22          program will remain in place.  This 
23          confidence will allow continued reinvestment 
24          in the urban cores, downtowns and main 

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 1          streets of communities in every corner of 
 2          New York State.  
 3                 Buffalo has led upstate in historic 
 4          tax credit investment, thanks to our state 
 5          program.  Other cities and towns such as 
 6          Syracuse, Albany, Rochester, Binghamton, and 
 7          Jamestown are following Buffalo's lead.  
 8                 In recognizing the economic impact of 
 9          the state Historic Tax Credit, the 
10          Preservation League has seen municipalities 
11          across New York seek program eligibility 
12          through National Register Historic District 
13          nominations.  These nominations alone can 
14          take up to a year for completion and 
15          designation.
16                 Among the municipalities currently 
17          seeking National Register Historic Districts, 
18          so they can take advantage of this credit, 
19          currently set to sunset in 2019, are 
20          Syracuse, Rochester, Buffalo, the villages of 
21          Schoharie, Palatine Bridge and Monticello, 
22          and the City of Elmira, as well as the West 
23          Harlem neighborhood of New York City.  
24                 Without reassurance that the program 

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 1          will continue beyond 2019, communities will 
 2          have no incentive to seek program 
 3          eligibility, derailing economic 
 4          revitalization efforts throughout upstate 
 5          New York.  
 6                 The Federal Tax Cuts and Jobs Act 
 7          creates new obstacles to historic 
 8          preservation in New York State.  The 
 9          20 percent Federal Historic Tax Credit was 
10          changed in the tax reform so that instead of 
11          taking the credit in a single year, investors 
12          must spread out the credit over five years.  
13          By requiring this five-year credit period, 
14          the federal government diminished the value 
15          of this credit to investors.  
16                 Because our New York State Historic 
17          Tax Credit is linked to the Federal Historic 
18          Tax Credit, defined by the federal program, 
19          changes on the federal level weaken the state 
20          program.  Economists currently estimate that 
21          by spreading the credit over five years, the 
22          Federal Historic Tax Credit will have about a 
23          15 percent reduction in value to historic tax 
24          credit investors that contribute the 

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 1          necessary capital for historic preservation 
 2          projects.  Because of the coupling of our 
 3          state credit to the federal program, we 
 4          anticipate that the state would similarly see 
 5          a loss in the investment value of its credit 
 6          dollar.  
 7                 The Preservation League recommends 
 8          that New York decouple the state tax credit 
 9          from the federal credit so that the state 
10          program can maintain its vitality and 
11          New York State can continue to see a strong 
12          return on its tax credit investment.  
13                 Thank you for your time and 
14          consideration of my testimony this morning.
15                 CHAIRWOMAN YOUNG:  Thank you.
16                 CHAIRWOMAN WEINSTEIN:  Thank you.
17                 CHAIRWOMAN YOUNG:  Excellent 
18          testimony.  And I appreciate you pointing out 
19          Jamestown.  And it's a very, very valuable 
20          asset and economic development tool that we 
21          have in New York, so I appreciate your 
22          remarks very, very much.
23                 MS. TOBIN:  Thank you.
24                 CHAIRWOMAN YOUNG:  Oh, Senator Krueger 

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 1          has a question.
 2                 SENATOR KRUEGER:  Thank you.  
 3                 I also appreciate your testimony.  
 4                 So you're proposing that we extend the 
 5          existing law and that we recognize that we 
 6          need to decouple from the federal.  But you 
 7          didn't comment on the Governor's proposal to 
 8          actually delay the paying of the credit.  Do 
 9          you see that as having an impact on the 
10          program as well, or is that not really a 
11          concern?
12                 MS. TOBIN:  It is a concern.  And 
13          right now our top priority is to see the 
14          program extended and decoupled.  But 
15          absolutely, it's the deferral; that affects 
16          projects that are in the pipeline right now.  
17          And we can think of almost a dozen projects 
18          around New York State, at least, just off the 
19          top of our head, that would be affected by 
20          this deferral.  And it's certainly --
21                 SENATOR KRUEGER:  Because they're over 
22          $2 million.
23                 MS. TOBIN:  Right.  So -- and that's 
24          important, again, for investor confidence and 

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 1          investment.
 2                 SENATOR KRUEGER:  Thank you.
 3                 CHAIRWOMAN YOUNG:  Thank you.
 4                 CHAIRWOMAN WEINSTEIN:  Thank you for 
 5          being here today.
 6                 Next we have the New York Health Plan 
 7          Association, Eric Linzer, president and CEO.
 8                 MR. LINZER:  This is my first time up 
 9          here, so I'm new to the area.
10                 SENATOR YOUNG:  We're not as mean as 
11          we look.
12                 (Laughter.)
13                 MR. LINZER:  You all seem very nice.
14                 Chairwoman Young, Chairwoman 
15          Weinstein, members of the joint committees, 
16          thank you for the opportunity today to 
17          testify.  For the record, my name is Eric 
18          Linzer.  I'm the president and CEO of the 
19          New York Health Plan Association.  I'm here 
20          to testify today on the provisions in the 
21          Governor's proposed Executive Budget that 
22          would impose a 14 percent tax on for-profit 
23          health insurers.  
24                 We're opposed to this proposal for 

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 1          three specific reasons.  First, as you heard 
 2          from the Empire Center earlier today, this 
 3          proposal unfairly targets one specific 
 4          industry.  To us, it makes very little sense 
 5          to target one specific industry at a time 
 6          when other corporations are benefiting from 
 7          the same changes in the federal tax law.
 8                 Additionally, the proposal for this 
 9          14 percent tax doesn't appear to take into 
10          account other changes in federal tax law that 
11          may actually reduce the impact of the overall 
12          benefit of the changes in the federal tax 
13          rate.
14                 Second, health insurance costs -- or 
15          taxes on health insurance in this state are 
16          already too high.  As you're all well aware, 
17          state taxes, fees and assessments total 
18          roughly $5 billion.  This amount of money is 
19          comparable -- essentially creates the 
20          third-highest revenue generator into the 
21          state budget, behind only income taxes and 
22          the sales tax.
23                 As you heard from the Business Council 
24          earlier, New York is among the states with 

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 1          the highest tax burden in the country.  At 
 2          this time it makes little sense to us to add 
 3          to that difficulty and the strain that 
 4          businesses, particularly small businesses, 
 5          face.  And rather than creating a special 
 6          piggy bank, essentially, to fund healthcare 
 7          programs, we need to find a better way to 
 8          utilize the $5 billion that's already paid in 
 9          health insurance taxes through, you know, 
10          greater efficiencies and more effective use 
11          of those dollars.
12                 And third, the funding is unnecessary 
13          based on the rationale for the tax.  The 
14          explanation for the tax has been that this 
15          money is needed to protect important 
16          healthcare programs in New York in the face 
17          of potential federal budget cuts.  
18          Fortunately, those budget cuts don't appear 
19          to be materializing, as the recent 
20          congressional continuing resolution that 
21          passed in January included extension of the 
22          Children's Health Insurance Program funding.  
23          Likewise, the current congressional spending 
24          bill that is now pending would extend the 

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 1          funding for CHIP as well as funding for 
 2          Disproportionate Share Hospitals and to 
 3          community health centers.  
 4                 It makes the rationale for this tax 
 5          unnecessary, and it raises the question as to 
 6          why we would create a new separate healthcare 
 7          fund at a time when cuts at the federal level 
 8          aren't materializing.
 9                 Finally, I think it's important to 
10          recognize that these health plans, our member 
11          plans play a very important role in both 
12          New York's economy and the communities in 
13          which they operate.  These entities pay 
14          billions in wages to New York residents as 
15          well as hundreds of millions of dollars in 
16          state and local taxes.  Likewise, they employ 
17          tens of thousands of individuals throughout 
18          the state, particularly in upstate New York, 
19          where it's been a particular challenge to 
20          generate good-paying jobs.  
21                 Further, these entities invest in 
22          their local communities, whether it's local 
23          organizations or local businesses.  
24                 This tax on for-profit health insurers 

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 1          is only going to make it more difficult for 
 2          those entities to operate and do business 
 3          here in New York, making it a challenge to 
 4          add new jobs and invest in their local 
 5          communities.  And for these reasons, we would 
 6          urge you to oppose the 14 percent tax that 
 7          the Governor has proposed.
 8                 I appreciate the opportunity to 
 9          testify today.  I'll be happy to take any 
10          questions that the committees may have.
11                 Thank you.
12                 CHAIRWOMAN WEINSTEIN:  I have a quick 
13          question.
14                 I assume you were here from the 
15          beginning and heard the testimony when this 
16          issue was raised with the tax commissioner 
17          and the budget director.  And one of the 
18          justifications for this tax that we're 
19          talking about now was that the current tax 
20          rates, before the federal changes, were built 
21          into the rate structure of the plans.  And 
22          that now there is this -- forgetting about 
23          other changes, that there's now a lower tax 
24          liability.  So that their point is to capture 

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 1          what was already anticipated to be paid in 
 2          taxes.
 3                 MR. LINZER:  I think the answer to 
 4          that, Madam Chair, is twofold.  If we're 
 5          talking about next year's rates, the 2019 
 6          rates, the changes in the tax rate would 
 7          certainly be reflected in the rates that the 
 8          plans would file that would be effective the 
 9          beginning of next year.  And I think the 
10          Empire Center had alluded to some of this.
11                 If, however, we're talking about -- 
12          and I believe your question goes to this 
13          point -- the rates that are currently in the 
14          market, I think it's important to remember a 
15          couple of things.  
16                 First of all, those rates were 
17          approved by the state several months ago 
18          prior to any changes in the tax law, and we 
19          recognize that.  However, there's already a 
20          mechanism in place under state law that would 
21          result in employers and consumers seeing the 
22          benefit of the changes, and that's the 
23          medical loss ratio rebate process.  
24                 State law requires that for individual 

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 1          and small groups, that at least 82 percent of 
 2          the premium dollar has to be used to pay for 
 3          medical services.  For large groups, it's 
 4          85 percent.  So that if we don't meet these 
 5          thresholds or those targets, either because 
 6          medical costs don't reach that level or we 
 7          spend less on admin, we're required to pay a 
 8          rebate back to employers and consumers.  
 9                 I think what's important to remember 
10          here is that given the current marketplace 
11          and that, say, for example, the potential for 
12          potentially higher medical costs this year, 
13          especially when you consider the bad flu year 
14          we're already engaging in and what that may 
15          do for medical costs, you know, the 
16          expectation is that any benefit that may come 
17          from changes in the taxes that a health plan 
18          may pay in the context of the MLR rate 
19          equation, you know, would be used for either 
20          (a) to deal with higher than anticipated 
21          medical costs due to unanticipated or higher 
22          utilization or (b) if we don't meet those MLR 
23          standards, we would have to send back 
24          payments to employers and consumers.

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 1                 So we think that's the appropriate 
 2          mechanism in place, you know, rather than the 
 3          proposal that the Governor has put forth in 
 4          his budget.
 5                 CHAIRWOMAN WEINSTEIN:  Thank you.
 6                 CHAIRWOMAN YOUNG:  Thank you for being 
 7          here.
 8                 So we had a good discussion earlier 
 9          with the administration and also with E.J. 
10          McMahon.  And one of the questions I have has 
11          to do with if this windfall tax goes into 
12          place, E.J. and I had talked about whether it 
13          would have an impact on premiums.  Could you 
14          address that?  
15                 And if the free market were to be 
16          applied, what would the impact on consumers 
17          be?
18                 MR. LINZER:  Well, I think the impact 
19          on premiums, given that the current year 
20          rates have been locked in -- I think to my 
21          point I had made to Chairwoman Weinstein, for 
22          2018 that would be reflected in the MLR 
23          rebate calculation.
24                 For 2019, as plans begin to develop 

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 1          their rates that we'll have to submit to DFS 
 2          in just a matter of a few months, the plans 
 3          will have to take into account what their 
 4          administrative costs would be.  That will 
 5          include what we pay in taxes, fees, 
 6          assessments, et cetera.
 7                 So that if the taxes that a health 
 8          plan is paying are lower than what they were 
 9          from the previous year, that would be 
10          reflected in the rates that we submit to DFS.
11                 CHAIRWOMAN YOUNG:  So if this windfall 
12          tax were not applied and the federal tax 
13          reform reductions went ahead, you're saying 
14          that there would be a positive impact on 
15          consumers as far as the cost of health 
16          insurance policies.
17                 MR. LINZER:  Keep in mind, Madam 
18          Chair, that it would be one factor that goes 
19          into how rates get developed.  You know, keep 
20          in mind that when health plans develop rates, 
21          there is the aspect of what you pay in taxes, 
22          fees, assessments as part of the 
23          administrative aspect.
24                 There's also other aspects that will 

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 1          have an impact on what goes into the 
 2          premiums.  You know, certainly the cost for 
 3          medical services.  Health insurance premiums 
 4          are inextricably linked to the cost of 
 5          healthcare.  So as the cost of doctor's 
 6          visits, hospital stays, pharmaceutical costs 
 7          increase, that does have an impact on the 
 8          premium.  
 9                 In addition to that, given some of the 
10          other changes that are being proposed or are 
11          in place -- such as the elimination of the 
12          individual mandate, the proposed association 
13          health plan regulations at the federal 
14          level -- those will be factors that health 
15          plans will have to take into consideration.  
16          Likewise, the suspension of the health 
17          insurance tax at the federal level for 2019 
18          would also be something that would be 
19          incorporated.  
20                 So there's a number of factors here.  
21          I couldn't be able to give you a prediction 
22          of what reduction in the federal corporate 
23          tax rate would mean from a premium 
24          standpoint, because there are a number of 

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 1          other factors, most notably in the space of 
 2          the medical spend, that probably has a bigger 
 3          impact on what premiums look like than what 
 4          some of the administrative costs do.
 5                 CHAIRWOMAN YOUNG:  Thank you.  But if 
 6          there's any way that you could work it out so 
 7          that costs could be reduced on consumers, I 
 8          think that would be a great thing.
 9                 MR. LINZER:  We agree with you 
10          completely, Madam Chair.  And actually 
11          yesterday we had outlined a six-point 
12          proposal on measures that we'd be happy to 
13          talk with you and other members of the 
14          various committees about ways to, one, 
15          contain healthcare costs that benefit 
16          employers and consumers, but also, secondly, 
17          would seek to help reform the Medicaid 
18          program and that $5 billion that I had 
19          referenced, so that's a much more efficient 
20          and effective program that ultimately we 
21          don't have to have a conversation next year 
22          about new revenues, but rather ways that 
23          we're making sure we're getting value for the 
24          dollars that the state's paying.

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 1                 CHAIRWOMAN YOUNG:  Thank you.
 2                 CHAIRWOMAN WEINSTEIN:  Assemblywoman 
 3          Galef.
 4                 ASSEMBLYWOMAN GALEF:  Just a quick 
 5          question.  You mentioned the individual 
 6          mandate, that that's gone.  How is that going 
 7          to impact the rates?  
 8                 MR. LINZER:  It will have some bit of 
 9          a -- it will have a -- let me start again.  
10          It will have an impact.
11                 ASSEMBLYWOMAN GALEF:  Positive or 
12          negative?  
13                 MR. LINZER:  I think it would be 
14          negative.  You know, given -- you know, 
15          certainly negative.  I think the expectation 
16          would be that, you know, individuals -- 
17          remember, the point of the individual mandate 
18          was to encourage not just individuals who 
19          need health insurance and need access to 
20          services to participate in the pool, but 
21          those who are younger, healthier, maybe less 
22          apt to utilize their services.  We want to 
23          have a balanced pool.
24                 Eliminating the mandate has the 

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 1          potential to encourage some of those younger, 
 2          healthier individuals from participating in 
 3          the market.  What that looks like -- you 
 4          know, again, the plans are just in the 
 5          process of beginning to develop their rates 
 6          for 2019.  I'd be happy to come back at a 
 7          later date and talk with you in more detail 
 8          about what we're seeing from our members.  
 9          But it certainly will have an impact on 
10          rates.
11                 ASSEMBLYWOMAN GALEF:  So you wouldn't 
12          have supported it on a federal level.
13                 MR. LINZER:  You know, again, I'm a 
14          month into the new job here.  I do come from 
15          Massachusetts, which did have and has had an 
16          individual mandate for a long time.  It has 
17          had a benefit.  
18                 But remember, I think the other piece 
19          to keep in mind is health insurance is 
20          expensive because healthcare is expensive.  
21          Getting at underlying healthcare costs, 
22          dealing with the prices charged by doctors, 
23          hospitals, pharmaceutical companies is an 
24          important way to get at lowering premium 

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 1          costs and encouraging some of those folks who 
 2          may choose not to participate, in the absence 
 3          of the individual mandate, to actually get 
 4          into the pool.
 5                 CHAIRWOMAN WEINSTEIN:  Thank you for 
 6          being here.
 7                 MR. LINZER:  Thank you.  
 8                 CHAIRWOMAN YOUNG:  Thank you.
 9                 SENATOR KRUEGER:  Thank you.
10                 CHAIRWOMAN WEINSTEIN:  Our final 
11          witness for today, Schuyler Center for 
12          Analysis and Advocacy, Dede Hill, director of 
13          policy.
14                 MS. HILL:  Good afternoon, Chairwoman 
15          Young, Chairwoman Weinstein.  Thank you so 
16          much for this opportunity.  Thank you to all 
17          the members of the respective committees and 
18          to everyone for hanging in there.
19                 As you noted, I'm policy director of 
20          at the Schuyler Center for Analysis and 
21          Advocacy.  We are a 146-year-old organization 
22          dedicated to advancing policies that improve 
23          the lives of New York families and children, 
24          with a special focus on low-income families.

                                                                   234
 1                 I'm here today to talk about child 
 2          poverty.  One of our state's most painful 
 3          failures is that a quarter of our children 
 4          live in poverty.  And those numbers are 
 5          higher in communities of color:  One-third of 
 6          Latino and black New York children live in 
 7          poverty.  And compared to the rest of the 
 8          country, we don't measure well.  We're ranked 
 9          33rd in terms of child poverty around the 
10          country.
11                 And one more important statistic that 
12          I want to mention is that of all of our 
13          New York children who live in poverty, 
14          65 percent of them have at least one parent 
15          who's working.
16                 And at this point you might be 
17          wondering if I walked into the wrong hearing.  
18          I recognize that Human Services was Tuesday.  
19          I will note that the wait time for this 
20          hearing is a little better than Human 
21          Services, so I appreciate that.  
22                 But no, I did not sign up for the 
23          wrong hearing.  Tax policy can be part of the 
24          solution to child poverty.  And in 

                                                                   235
 1          particular, working family refundable tax 
 2          credits are an important way to build family 
 3          economic security and independence and to 
 4          enable families to pull themselves and their 
 5          children out of poverty.  
 6                 And these credits, they encourage 
 7          work, because the taxpayer has to earn an 
 8          income in order to be eligible.  The credits 
 9          increase with income to a point and then 
10          gradually phase out.  
11                 Also we know that even modest boosts 
12          in income for low-income families from tax 
13          credits, particularly families with young 
14          children, can yield tremendous benefits for 
15          children, including improved physical, 
16          emotional and behavioral health, higher 
17          educational attainment, and increased future 
18          earnings.  
19                 As has already been mentioned by some 
20          presenters earlier, the benefits of the 
21          federal tax overhaul are skewed sharply in 
22          favor of high-income earners.  The tax 
23          overhaul is going to provide very few 
24          benefits for New York's working families.  

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 1          And in fact it's going to increase the tax 
 2          burden for some of our working immigrant 
 3          families who will no longer be eligible for 
 4          the federal child tax credit.  
 5                 And further -- and this is something 
 6          that Mr. Kink mentioned -- the federal tax 
 7          overhaul is going to expand the divide 
 8          between wealthy and poor New Yorkers.  And 
 9          our state already has the dubious distinction 
10          as the state with highest income inequality, 
11          and this is going to deepen that divide.  
12                 So now more than ever, it's up to 
13          New York to take the lead and tackle its 
14          child poverty problem and put families on a 
15          path to economic independence and security.  
16          And one way to do that is to strengthen 
17          New York's working family tax credits.  
18                 And I would like to propose today that 
19          we start with the Empire State Child Credit.  
20          And this is New York's version of the child 
21          tax credit.  And of course the child tax 
22          credit, both federal and the state, is -- 
23          it's designed to offset the high cost of 
24          raising kids.  

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 1                 And while New York is a leader in the 
 2          nation in having a refundable child tax 
 3          credit, our credit has a very serious flaw:  
 4          It omits children under age 4.  And as any of 
 5          you who have raised kids know, this defies 
 6          logic.  Raising young kids is super 
 7          expensive, and young families tend to be the 
 8          families who are struggling the most, because 
 9          they're at the beginning of their career 
10          ladders.  They're struggling already to sort 
11          of make ends meet.  And yet -- and yet we 
12          omit these children from our child tax 
13          credit.  
14                 And this exclusion is out of step with 
15          the growing body of research establishing the 
16          critical importance of investments in the 
17          early years.  And also we know that 
18          investments in young children pay dividends 
19          later, they save the state money.  
20                 This year the state has taken 
21          important steps to target investment in our 
22          youngest New Yorkers, in implementing its 
23          path-breaking First 1,000 Days on Medicaid 
24          program.  We suggest that the state also take 

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 1          the step and correct this flaw in our Empire 
 2          State credit.  This will complement the 
 3          efforts of the First 1,000 Days on Medicaid 
 4          initiative.  
 5                 And also another reason that this is 
 6          an important year to fix this flaw is that 
 7          the Empire State Child Credit is one of the 
 8          very few income supports available to some of 
 9          New York's immigrant families.  And again, as 
10          I noted earlier, the federal child tax credit 
11          has just been taken away from those families.  
12                 It's -- just an aside about the 
13          Governor's proposed budget.  Currently our 
14          Empire State Child Credit is linked to the 
15          federal child tax credit.  However, in the 
16          proposed Executive Budget it's proposed to 
17          keep the two linked but freeze in time the 
18          link to how the federal child tax credit 
19          existed prior to the tax overhaul.  
20                 What that is going to mean is that our 
21          Empire State Child Credit is not going to 
22          increase in lockstep with the federal child 
23          tax credit.  That, I would argue, is bad 
24          news.  

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 1                 But the good news is that our 
 2          immigrant families who were eligible under 
 3          the federal credit prior to the tax overhaul 
 4          will remain eligible at least for our Empire 
 5          State Child Credit.  So that's good news.  
 6                 What the Governor's Executive Budget 
 7          does not do is fill in this gap of children 
 8          zero to 4.  And so we urge you today to 
 9          consider taking that up, fixing that flaw -- 
10          and then go a step further.  We suggest that 
11          you double the tax credit for young children.  
12                 This would put New York State at the 
13          forefront in taking care of our youngest 
14          New Yorkers.  It would put us in line with 
15          all of the literature that tells us invest in 
16          kids early, it will change the course of 
17          their lives for the rest of their lives and 
18          will also save the state money down the road.  
19                 Thank you very much for your 
20          attention, and I'm happy to answer any 
21          questions.
22                 CHAIRWOMAN WEINSTEIN:  Senate?  
23                 CHAIRWOMAN YOUNG:  Senator Krueger.
24                 SENATOR KRUEGER:  Thank you for your 

                                                                   240
 1          testimony.
 2                 And just double-checking, so E.J. 
 3          McMahon earlier actually called for 
 4          decoupling from the federal to double the tax 
 5          credit for children.  You also support that, 
 6          or you don't support that?  
 7                 MS. HILL:  So it's -- I was here and I 
 8          was listening, and somehow I missed that.  So 
 9          he proposed decoupling --
10                 SENATOR KRUEGER:  Mm-hmm.
11                 MS. HILL:  -- and doubling?
12                 CHAIRWOMAN WEINSTEIN:  No.  Not 
13          decoupling.
14                 SENATOR KRUEGER:  No, he said that -- 
15          I'm sorry.  The Governor failed to address 
16          the obvious issue, does not go out of its 
17          way -- it does go out of its way to decouple 
18          New York State law for a single federal tax 
19          provision, the doubling of the federal child 
20          credit and expansion of the income phaseout 
21          for parents.  Absent any changes, would 
22          automatically double our Empire State Child 
23          Credit from 333 to 666.
24                 You support this.  I'm just 

                                                                   241
 1          double-checking.
 2                 MS. HILL:  So I am not here today 
 3          asking for necessarily to -- so okay, if we 
 4          do nothing, if the Governor's proposal is not 
 5          passed, then yes, our Empire State Child 
 6          Credit would double in lockstep with the 
 7          child tax credit.  We certainly would not 
 8          oppose that.  
 9                 That's not the -- but I would also 
10          point out that we would also go in lockstep 
11          with the feds, the federal government, as far 
12          as excluding some of our immigrant families, 
13          and that we would oppose.  So -- and then -- 
14          but our focus today is really to fill in this 
15          gap in coverage of children under age 4.
16                 SENATOR KRUEGER:  And is there an 
17          estimated cost to the state for doing that?  
18                 MS. HILL:  We have a very, very rough 
19          back of the envelope:  200 million.
20                 SENATOR KRUEGER:  Thank you.
21                 CHAIRWOMAN WEINSTEIN:  Thank you.
22                 CHAIRWOMAN YOUNG:  Thank you.
23                 CHAIRWOMAN WEINSTEIN:  So this 
24          concludes the joint budget hearing on Taxes.  

                                                                   242
 1          We will be back here Monday for the Health 
 2          joint hearing.  
 3                 (Whereupon, the budget hearing 
 4          concluded at 1:38 p.m.)
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