TESTIMONY OF BOB COHEN, POLICY DIRECTOR CITIZEN ACTION OF NEW YORK BEFORE THE ASSEMBLY WAYS AND MEANS

AND SENATE FINANCE COMMITEES Joint Legislative Public Hearings On 2012-2013 Executive Budget Proposal: Taxes February 6, 2012

For more information, contact: Bob Cohen, Esq., Policy Director Citizen Action of New York 94 Central Avenue Albany, NY 12206 (518) 465-4600 (ext. 104) bcohen@citizenactionny.org www.citizenactionny.org

Good afternoon, Chairpersons Farrell and DeFrancisco. Thank you for the opportunity to testify today. My name is Bob Cohen. I am the Policy Director of Citizen Action of New York, a statewide membership organization that advocates for racial, social, economic and environmental justice with chapters or affiliates in seven communities throughout New York State. Our organization has long been concerned with protecting vital state programs in such diverse program areas as education, health care, and higher education. We are a leading coalition member of both the Alliance for Quality Education (AQE), a statewide organization that represents parents, students, teachers, and interested community members, and Health Care for All New York (HCFANY), a coalition working to implement the federal Affordable Care Act in our state. 1 Initially, wed like to thank you and your legislative colleagues for taking action in December to restructure the tiers of the state personal income tax to raise roughly $2 billion and lessen the adverse impact on education and other critical state services. We urge you to go further this session, and take critical steps to begin to seriously address the longstanding issue of the failure of so many of our largest corporations to pay their fair share of taxes. Addressing corporate taxation is necessary to address the supreme distress that many low and moderate income New Yorkers find themselves in today and to continue to improve the state economy overall. It is also a matter of basic fairness. I. New York Today: The 99% Are Still Hurting While the 1% Prosper A brief thumbnail sketch of the state economy makes it clear that while New York has fared better in the Great Recession than many other states, many New Yorkers are still facing significant and even massive hardships. The underemployment rate in New York State -- counting discouraged workers and those working part-time involuntarily -- is now over 14%, and the numbers are much higher for African-Americans (22%) and Hispanics (18%). Poverty rose
1

This testimony reflects the views of Citizen Action, not necessarily those of HCFANY or AQE. However, we note that AQEs education budget testimony before your committees supported proposals similar to the ones we are supporting today.

sharply during the recession. One in three New Yorkers and two of five New York City residents are either poor or near-poor (i.e., under 100-200% of the Federal Poverty Level), and homelessness is now at record levels. 2 Particularly discouraging to me as a health care advocate is the increase in the proportion of adults in the state that have become uninsured since the beginning of the Great Recession 3 -- although thankfully, we expect this trend will reverse itself if and when the Legislature acts in 2012 to create a health insurance exchange under the federal Affordable Care Act. 4 Despite the urgent needs of New Yorkers, funding levels for programs that are desperately needed to pull the state out of the recession or alleviate its hardship have been cut again and again or are at best stagnant. I only have time today for a few examples. Over the past two years, due to state education funding cuts, more than 11,000 teaching positions have been eliminated statewide, including numerous quality programs like afterschool and tutoring that students depend on to be career ready. Both SUNY and CUNY -- essential for the career hopes of so many young people right out of high school and adults are looking to improve their employment prospects mid-career -- have experienced significant state funding cuts. Finally, a desperately needed and long awaited increase in the state public assistance grant has been delayed. 5

Fiscal Policy Institute (FPI), Sizing up the Governors Proposed 2012-13 Executive Budget in its Economic Context (January 2012), at 4; FPI, The State of Working New York 2011: The Unemployment Crisis Two Years into Recovery (Fall 2011), at 15 (hereinafter, State of Working New York). State of Working New York, at 27. However, the number and proportion of children that are uninsured declined in New York from 2008 to 2010, presumably due to the impact of Child Health Plus and Medicaid. See Public Policy and Education Fund, The Affordable Care Act and New Yorkers: The Gift That Keeps on Giving, at 13.

The Executive Budget contains legislation in the Health and Mental Hygiene Article VII language bill to create a health insurance exchange as a health benefit corporation. According to a preliminary analysis publicly released by the Urban Institute last week, implementation of the ACA through the creation of a state exchange will result in roughly 1 million additional insured New Yorkers.

Alliance for Quality Education, Testimony Before the Senate Finance Committee and Assembly Ways and Means Committees (Joint Budget Hearings: 2012), at 1; Fiscal Policy Institute, New York State Economic and Fiscal Outlook 2012-2013 (January 2012), at 8-9, 13-15 (hereinafter, Economic and Fiscal Outlook).

A common reaction to these wearying facts is that we have no choice to cut during this period of national recession, particularly in light of a Congress that has clearly signaled its unwillingness to take any further action to help the states. This view simply ignores the obvious alternative: asking those who have benefitted the most from the economic growth of the past few decades to share in the burden of paying for the governmental services that have helped them to succeed. Only low and moderate income people have been asked to sacrifice during the Great Recession. A brief look at our corporate tax policies demonstrates this point. As you know, several significant loopholes favoring multi-state corporations were added to New Yorks corporate alternate minimum tax (AMT) beginning in 1994 and the AMT rate has been repeatedly cut since 1994. The effect of this race to the bottom by New York and other states to lower the tax rates paid by corporations and to give them additional ways to escape state taxation was predictable. A recent Citizens for Tax Justice (CTJ) report found that from 2009 to 2011, state corporate taxes were at their lowest share as a percentage of the national economy since World War II. 6 Between 2008 and 2010, the CTJ report found, 265 Fortune 500 corporations (for which tax information was available) paid state income taxes equal to only 3% of their U.S. profits, even though the average state corporate tax rate is about double that figure, or 6.2%. 7 New Yorks corporate income tax revenues have declined as a share of state tax revenues from 16% in 1994 to between 9% and 10% in 2011. 8 This should not be surprising, given the findings of the CTJ report as to how large multistate corporations escape paying state taxes. Many corporations headquartered in New
6

Institute on Taxation and Economic Policy and Citizens for Tax Justice, Corporate Tax Dodging In the Fifty States, 2008-2010 (December 2011), at 3 (hereinafter, Corporate Tax Dodging).

Id., at 1. CTJ/ITEP was not able to provide the percentage of the U.S. profits paid by the corporations by state, as corporations do not disclose their profits and taxes on a state-by-state basis. This is an argument for the enactment of state corporate tax disclosure legislation, as we are advocating in this testimony.
8

Economic and Fiscal Outlook, at 53.

York pay a shockingly low percentage of their U.S. profits in the form of corporate taxes. For example, Corning and Travelers paid .1%, American Express paid 1%, Con Ed paid 1.5%, and Verizon paid 2.6%. 9 Average New Yorkers and other Americans have paid the price for shortsighted state corporate and other tax policies through increases in the taxes we pay coupled with cuts in the state and local services we depend on. And, as anyone who just watches television knows: income equality has increased dramatically in recent decades. The income of the top 1% of New Yorkers has gone up 500% in the past thirty years, while the income of the bottom 50% has declined by 13%. 10 What the shocking increase in income disparities in our state also tells us is that its not enough to say that the problems of low and moderate income New Yorkers will improve once the economy picks up. Without serious changes to our state and federal tax policies and other necessary changes, like an increase in the minimum wage, many working families may not benefit enough from economic growth to have a quality standard of life. 11

II.

Steps Towards Reform: Recommendations to Reform Corporate Taxes in New York To avoid further cuts to vital state services, address the increasing unfairness

of the state tax code, and ensure that the benefits of the economic recovery are more fully shared, Citizen Action urges the Legislature to take steps this session to ensure that large corporations with a connection to New York begin to pay their fair share of taxes. Id like to add that the proposals Im about to briefly outline are supported a massive number of community, labor, human services and advocacy groups, including 99% New York, the Strong Economy for All Coalition, New Yorkers for Fiscal Fairness, and the Fiscal Policy Institute.
9

Corporate Tax Dodging, at 26.

10

FPI and New Yorkers for Fiscal Fairness PowerPoint Presentation, We Need a NY that Works for All of Us (February 2012), slide 3. Economic and Fiscal Outlook, at 47. FPI found that the top 1% of Americans receive half of all corporate dividends and 85% of all capital gains.

11

First, we should increase the corporate AMT to where it was a decade ago -3.5% -- thus also introducing greater equity between large multinational corporations and New York based small businesses. The corporate AMT was cut from 3.5% to 2.5% in 1999 and then to 1.5% in 2005 for non-manufacturers. Finally, the rate was cut to .75% for manufacturers. (The manufacturers rate was changed in the December 2011 tax reform package.) Restoring the corporate AMT to the 3.5% level would generate hundreds of millions of dollars each year alone. Second, New York should join 28 of the 45 states with corporate income taxes to enact so called throw-back rules to limit the ability of multi-state corporations to avoid taxes on profits deriving from sales in states where they do not have a physical presence. Third, New York should reexamine its misguided 2005 decision to institute the single sales factor method for apportioning taxes from multi-state corporations that make profits in several states, including New York. While sold as a method of encouraging manufacturing, it has only drained the treasuries of the states enacting it to the detriment of the rest of us. Fourth, we should expand the nonresident personal income tax to include income received from hedge fund management fees, generating an estimated $50 million in additional revenue. Finally, in the sole measure we are recommending that does not raise additional tax revenues, New York should pass legislation to increase disclosure requirements for publicly traded firms in New York. Policymakers and the public simply cannot evaluate the impact of tax measures unless they are able to document the amount of taxes paid by firms with a connection to the state. Thank you once again for holding this hearing and for the opportunity to testify today.
5