NY Senate Budget Chair Blasts $3 Billion in ‘Absurd’ Tax Breaks

New York provides $3 billion in “questionable, arbitrary and downright absurd” tax breaks every year, state Sen. Andrew Gounardes, chair of the Committee on Budget and Revenue, said in a new report.

The Democrat’s criticism comes as state lawmakers promise to crack down on tax incentives with the state facing an uncertain financial future under Washington’s new GOP control. President Donald Trump (R) and lawmakers are working on actions with fiscal implications for the state, from new tariffs to an overhaul of the federal tax code.

Gov. Kathy Hochul (D) unveiled a $252 billion budget plan earlier this week that would add billions in new funding for Medicaid and school aid while cutting income taxes for the middle class. But Democratic lawmakers said she will face pressure to raise new revenue to fill funding shortfalls at the Metropolitan Transportation Authority and prepare for potential federal funding lapses with the state projecting multibillion budget gaps in future years.

Gounardes’ Friday report criticizes a variety of tax credits, from a sales tax exemption on gold bars to the allowance of itemized deductions for work-related luxury cruise travel and private plane purchases.

Not all of the tax expenditures flagged in the 35-page report necessarily need to be repealed, the lawmaker said, but they should be “carefully re-examined through a contemporary lens, particularly as most of the major provisions” of the 2017 federal tax law are “set to expire or be renewed by Congress” this year.

“When our budget includes absurd loopholes and carve-outs like these, everyday New Yorkers often end up paying the price,” he said in a statement.

The Senate and Assembly have scheduled a Feb. 27 hearing on the tax provisions in Hochul’s spending plan.

Sales Tax Breaks

Gounardes lists several sales tax exemptions that deserve renewed attention, the largest of which is a carve-out for the sale of precious metal and bullion on purchases that exceed $1,000. He said the tax break costs the state $601 million annually.

Several states have nixed the sales tax on gold bars and silver coins in recent years, with New Jersey last September joining more than 40 states that have partially or fully repealed the tax. Lobbying groups like the Sound Money Defense League, which is funded by online dealer Money Metals Exchange, have pushed for the carve-outs.

The report also highlights tax breaks for luxury travel items, including an insurance and sales tax break for marine vessels that costs the state $7 million in foregone revenue and a break for general aviation aircraft, machinery, and equipment that costs New York $18 million. A sales tax break for private jet services totals $6 million.

Other sales tax expenditures named in the report include an exemption for fraternal organization dues that totals $23 million per year and a $6 million annual sales tax break for the purchase of racehorses used for sports betting.

Itemized Deductions

Gounardes also scrutinized several items that can qualify for itemized deductions on personal income tax forms, such as the ability to deduct gambling losses. Eleven states deem such losses taxable, the report said, and the deduction has “undoubtedly increased in expense due to the explosive growth of online sports betting.” It said the deduction’s fiscal implications are unknown.

“As these filers are on average much wealthier than taxpayers taking the standard deduction, this means that the state is in effect subsidizing gambling habits for some the wealthiest taxpayers in the state,” Gounardes said in the report.

The report also faults the ability of taxpayers to deduct unreimbursed work travel, which includes trips by luxury cruise. Gounardes said the federal government repealed this kind of deduction under the 2017 federal tax law, but New York didn’t follow suit.

The report flags other types of itemized deductions for further evaluation, including a deduction for charitable contributions that totals $863 million annually and the provision for filers to deduct interest on the first $1 million of a mortgage, which costs $497 million per year.

Business Exemptions

The report looks at a variety of tax incentives that benefit businesses, including tax breaks for real estate investment trusts, or REITs, and regulated investment companies, or RICs.

The paper said “non-captive” REITs and RICs, those that don’t have a single majority shareholder, are subject to a reduced fixed-dollar amount on the state’s corporate franchise tax of $25 to $100. As a result, these kinds of entities with receipts between $25 million and $50 million are liable for just $500 of corporate franchise tax, Gounardes said, “whereas most other types of businesses are liable for ten times as much, $5,000.” The favorable tax treatment costs the state $5 million per year, he said.

Gounardes also looked at different tax expenditures that subsidize the purchase of energy sources that depend in whole or part on fossil fuels, losing the state $4.1 million in foregone revenue. He said the tax breaks “directly counter” the state’s climate law to reduce carbon emissions 40% below 1990 levels by 2030.