As we wait on the congressional vote – likely favorable – on the billionaires’ holiday tax giveaway, the lump of coal in New York’s stocking is about the size of West Virginia. And it will get worse before it gets better.
The White House and Republican congressional leadership fully intend to pursue budget cutting as rapaciously as they did finding ways to reward deep-pocketed donors.
Without the radical federal tax and budget cuts, the coming year’s budgets for New York state and New York City would be manageable, and they both have sizable reserves. Seven-plus years of economic recovery and expansion have pushed New York City’s job count 600,000 above prior peaks, and city and state tax revenues were growing 4-4.5 percent annually before this year’s uncertainty in Washington slowed growth in personal income tax collections. Now, the budget outlooks are fraught with the possibility of generation-defining federal safety net shredding.
The decades-old federal-state fiscal partnership appears more precarious than ever. To help pay for the historic and dubiously-defended corporate tax cuts, there will be an unprecedented dilution of the federal deductibility of state and local taxes. At best, it appears the conference bill will limit that to $10,000 in either property or state and local income taxes. For the richest who pay a lot of New York state and city income taxes, deductibility had meant that nearly 40 percent was offset by the federal government. Severely limiting deductibility, which also hits many upper middle-income households, could create pressure for New York to reduce taxes in the face of compelling budget needs likely to grow.
The GOP plan all along has been to cut taxes, then cut the budget. The signals these past few weeks from the White House and Capitol Hill are unmistakable – as soon as the tax cutting bill is signed, dramatically worsening the outlook for the federal deficit, funding for a range of federal programs for the vulnerable and children will be slashed, and slashed deeply. Once again, deficit concerns are wholly determined by political expediency, nothing else. The congressional budget resolution passed in October called for $5.8 trillion in cuts over the next decade. Big cuts are coming in SNAP, Medicaid, and all types of safety net funding, along with fresh attempts to cut long-sacrosanct Medicare and Social Security social insurance programs.
The fiction that big tax cuts would spur economic growth and ease the deficit was once again exposed by the recent University of Chicago Booth School of Business survey reporting that 37 of 38 prominent economists don’t believe either would happen. The remaining economist did agree it would worsen the public debt burden.
By any measure, the federal budget has a big footprint in New York. One-third of the state budget is federally funded (most for Medicaid), and while the city relies on federal dollars for 10 percent of its budget, the New York City Housing Authority budget gets two-thirds of its funding from Washington and the city’s Health + Hospitals Corporation’s budget is half federally funded.
Nonprofits providing human services under city agency contracts are heavily reliant on federal funds – 41 percent of all Administration for Children’s Services funding is federal, 35 percent of the Department of Homeless Services, 20 percent of the Department for the Aging, and 85 percent of the budget of the Housing Preservation and Development budget is federal. Federal funds are vital to dozens of programs including child welfare, foster care, Head Start, child care, family shelter operations, senior centers, domestic violence services, home energy assistance, HIV-AIDS services, after school programs, and lead paint abatement.
In addition, millions of city residents benefit directly from federally-funded programs, including 1.7 million receiving Supplemental Nutrition Assistance. Most elderly persons of color in the city depend almost entirely on Social Security and Medicare. If those social insurance benefits that they paid for are cut, the city will have little choice but to expand its own safety net.
The Urban Institute ran the numbers on a plausible scenario of federal safety net cuts and estimated that 28 million households would be adversely affected and that recent gains in poverty reduction would be wiped out overnight. The Center for American Progress estimated that just the Senate bill’s ACA health insurance mandate repeal would result in 843,000 New York state residents losing health insurance. All this retrogression and human suffering to boost after-tax corporate profits and lighten estate taxes on the richest 0.2 percent of households!
The well-funded media machine of the shrink-government crowd, as well as certain GOP senators, are busy cranking up the old narrative of “welfare reform” to justify shredding the safety net. It’s as if a lemon-peddling used car salesman decides to roll back the odometer just for good measure.
It’s too early to say how the governor and the mayor will respond to draconian federal budget cuts. Right now, they are loudly and appropriately pushing hard to head that off. Hopefully, the GOP loss in Alabama will give pause to other GOP senators when it comes to voting to repeal long-standing, deeply-rooted principles of fairness, federalism and American dream aspirations of greater opportunities for all.
If that effort fails and federal support for New York’s children and vulnerable communities precipitously declines, New York may have little choice but to seek to recapture some of the tax windfall the wealthy get from the dramatic lowering of federal taxes on “pass-through” business income. The state could reinstate its business tax on that privileged source of income and the city could curb the personal income tax credit it provides to millionaires against payments under the city’s unincorporated business tax. Who would argue that that should not be the first place to look to make up for Washington’s disastrous decisions?
James Parrott is the director of economic and fiscal policies at The New School’s Center for New York City Affairs.