Cuomo warns of tax hikes, dire cuts if feds can't find $15B

ALBANY, N.Y. — New York Gov. Andrew Cuomo had one overriding message Tuesday as he delivered his annual budget address from New York's state Capitol: If Washington, D.C., doesn’t send New York $15 billion as part of a pandemic relief package, he’ll have no choice but to slash public payrolls, cut services and raise taxes on the rich.

Cuomo argued that the state is uniquely entitled to those funds because the pandemic hit New York so hard last spring and was comparatively defenseless thanks to federal government bungling.

“New York paid a bill for Covid that no state in the nation paid for and it’s not even close in many ways,” he said. “The remaining cost is $15 billion.”

He went one step further and threatened to pursue litigation if the federal government did not acquiesce to his ask, though officials, when asked, did not immediately say whom the state might sue or what legal arguments New York could employ.

For the moment, though, it's uncertain whether the state will get what it is asking for, and its new budget, due at the end of March, reflects that uncertainty. “We don’t know, in short, what level of aid we will get, but the budget is dependent on that number,” he said.

The full amount would mean New York could avoid squeezing its localities out of their allotted aid, offer relief to small businesses and restaurants, focus on education and workforce issues, and get on the road to recovery, he said. Anything less, he said, would be an affront to the suffering the state experienced as one of the first to be overwhelmed by the pandemic, calling it a “2021 version of the federal government saying ‘drop dead’ to New York.”

Still, Cuomo’s budget director Robert Mujica said the state is moving on a plan centered on a much smaller number — about $6 billion — at least on paper. Mujica said that's the bare minimum the state will need to shore up its accounts. "I’m pretty confident — unless everyone is not telling the truth — we would get that amount,” Mujica said of $6 billion. But, he added, “Fifteen [billion] is the fair share.”

Until anyone in Washington tells them differently, the budget plan Cuomo must now negotiate with legislative leaders will include increasing taxes on the state’s wealthiest earners with five temporary surcharge rates that start for those earning $5 million or more. The new top rate would be 10.82 percent and taxpayers could prepay their surcharges for fiscal years 2022 and 2023 now for a corresponding deduction in fiscal 2024.

It also would delay for a year a scheduled tax cut for the middle class that started in 2018 and was supposed to be phased in by 2025.

The surcharge — which Mujica said would earn about $1.5 billion — would align the governor with Democrats in both legislative houses and progressives advocating for low-income communities who have long called for the state’s highest earners to pay more. Cuomo has consistently warned such a move would cause the wealthy tax base to leave the state. And Mujica said if the federal government comes through with more funding, such a move would no longer be as much of a priority.

Proponents of higher taxes on the wealthy remain wary of the governor’s plan. For one, the top bracket of earners — those making more than $100 million a year — would probably consist of roughly 118 individuals, said Michael Kink, who heads up advocacy coalition Strong For All, which has pushed for more aggressive tax measures.

That’s too small a group to charge what Cuomo and Mujica characterized as “one of the highest rates in the nation,” Kink says.

And fiscal hawks are unclear about the pre-payment option. Many of the high earners targeted by the surcharge might be cautious about the pre-payment option, noted the Empire Center’s E.J. McMahon, because future earnings will be specifically hard to predict. The incomes for top earners are always volatile because they’re often based on investment gains, he said, and the next few years will be especially difficult to estimate because federal tax changes are possible.

There are other measures aimed at bridging the gap between the $15 billion Cuomo wants and $6 billion he’s worried he’ll get, including continued (though lesser) withholdings to local aid, education and health care spending, Mujica said. Cuomo has also pushed for legalizing adult-use cannabis and mobile sport betting for a combined revenue gain of about $850 million, but both will take years to be fully phased in and lucrative enough to make a difference.

Adding to the uncertainty is a looming deadline. The new budget is due at the end of March, and while that deadline is notoriously “flexible,” Congress and the White House would need to act uncharacteristically quickly in order for any amount to make it into the state’s plan.

A radio host asked Cuomo late Tuesday about the backup plan to the backup if Congress doesn’t come through with anything in time.

“Don’t even think about it. I don’t want to even think about that possibility,” Cuomo said.