Despite the sales job, this month’s tax deal from New York state government does nothing to improve our atrocious business climate. What would?
For the record, we rank dead last among the 50 states in the just-published 2011 “Small Business Survival Index,” which I compile for the Small Business Entrepreneurship Council. The index rates how public policies affect entrepreneurship and investment, with 44 measures featured this year, from taxes and regulations to crime and property rights. Sadly, New York’s horrid standing is the result of decades of misgovernment.
New York has gotten things terribly wrong in most areas. On taxes, for example, the state inflicts high income, capital-gains, property and consumption levies. It also imposes its own death tax.
Despite those taxes, we have the second-highest level of state and local government debt — thanks to our high levels of state and local spending. New York government is also good at driving up business costs through regulation, but bad at protecting the private property of small businesses.
So what would make New York competitive? Here are five initial steps:
1) Get that top income-tax rate down: It was set to fall to 6.85 percent until Gov. Cuomo and the Legislature decided to embrace a rate of 8.82 percent on incomes over $2 million. Since more than 90 percent of businesses pay via the individual income tax, rather than the corporate tax, keeping the lower rate would have left more resources in the hands of job-creating entrepreneurs.
2) To attract capital to create and build businesses, eliminate New York’s capital-gains and death taxes. Entrepreneurship and investment is the key to economic and employment growth, so taxing the returns on investment is anti-growth. Nine states impose no individual capital-gains taxes; 29 have no death taxes. Sadly, the new tax deal imposes a top capital-gains-tax rate of 8.82 percent.
3) Roll back health-insurance mandates. Politicians make hay out of forcing health insurers to provide all kinds of coverage — but such regulation translates into higher insurance costs. New York’s extensive insurance regulations (especially rules that prevent insurers from charging less to younger, healthier people) give us some of the highest costs in the nation.
4) Rein in eminent-domain abuse: In the wake of the Supreme Court’s Kelo decision in 2005, many states have reinforced private-property protections — but not New York, where governments routinely abuse eminent domain for private uses. Reform might upset large developers, but it would be a big plus for small business, not to mention being politically popular.
5) Get electricity costs down: New Yorkers pay 60 percent above the US average. While the state, of course, should maintain needed safety regulations, it needs to be less burdensome on power producers and hostile to plant construction. By contrast, if Gov. Cuomo manages to close the Indian Point nuclear plant, New York rates will go even higher.
New York must start somewhere, and these five reforms would boost the state’s competitiveness — at least putting us ahead of New Jersey. Unfortunately, as is clear from the tax deal agreed upon by Cuomo, the Democratic Assembly and the Republican state Senate, the Empire State’s elected officials remain bent on inflicting more damage on businesses and the economy.
Long Island-based Raymond J. Keating is chief economist of the Small Business Entrepreneurship Council; his latest book is “‘Chuck’ vs. the Business World: Business Tips on TV.”