Tax-Free NY: New name, old mistake – By George J. Marlin

The following appears in the June 21-27, 2013 issue of the Long Island Business News:

To placate voters who are angry over his gun control legislation and his unwillingness to approve hydro-fracking or to implement genuine unfunded mandate relief for local governments, Gov. Andrew Cuomo has been conjuring up piddling economic proposals he hopes will boost his approval ratings.

Cuomo’s latest concoction is “Tax-Free NY.” Companies that “partner” with state universities and select private colleges and open or expand their facilities on 3 million square feet of designated land north of Westchester County and 30,000 square feet on Long Island, will be able to operate tax free.

There will be “no income tax for employees, no sales, property or business taxes for a decade.”

Tax-Free NY, which Cuomo has immodestly called the greatest game changing initiative since the construction of the Erie Canal, appears to be only a new label for an old error. It is a scaled down re-packaging of the failed scandal-ridden Enterprise Zones initiated during Gov. George Pataki’s tenure in office.

Enterprise Zones, championed in the 1980s by New York conservative icon Jack Kemp, called for tax breaks to entice businesses to relocate to depressed urban areas.

This supply-side economic theory anticipated that tax incentives coupled with the suspension of regulatory and zoning restrictions would entice entrepreneurs to invest in poverty-stricken areas and increase job opportunities.

A pilot Economic Development Zone program, created by Gov. Mario Cuomo in 1986, was dramatically revised by Pataki in 2000 and rechristened “Empire Zones.” Eligibility rules to receive tax benefits were expanded, as were the rules to create new zones.

A study released in 2009 by the Citizens Budget Commission concluded that the Empire Zone Program, whose costs skyrocketed from $30 million in 2000 to $580 million by 2008, had become “a vehicle for giving tax-breaks to a variety of corporations with no clear, consistent, verifiable justification for the public investment.”

In other words, a well-intentioned plan morphed into another form of crony-capitalism.

Andrew Cuomo’s SUNY Empire Zones could be a similar boondoggle that gives special treatment to the favored few at the general expense.

It could become a free-lunch program for savvy high-tech entrepreneurs who would seize opportunities to make millions by partnering with renowned and innovative SUNY professors regardless of the tax-structure.

Tax-Free NY could also be exploited by local schemers and the politically connected, particularly around community colleges, looking to escape heavy taxation.

Most importantly, Tax-Free NY discriminates against and penalizes struggling businesses and commercial real estate developers that have played by the rules, have paid their taxes and have put up with all the regulations. Vendors who have “partnered” with SUNY campuses throughout the state for decades would be penalized because they are located outside the zone.

Heavily taxed commercial real estate would have to unfairly compete against tax-free sponsored office spaces.

For over 30 years, governors have failed to address the state’s economic woes. In fact, their tax and spend and regulatory policies have made things worse.

If Cuomo doesn’t want to follow in their footsteps and turn vast regions of New York into a big Detroit, instead of a promoting a program that invites political shenanigans, he should create an equal playing field by significantly cutting state corporate taxes and reducing local tax burdens by eliminating unnecessary unfunded mandates.

Such bold broad-based policies would turn New York into one giant enterprise zone that would unleash entrepreneurial forces and truly shatter its high-tax reputation.

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