JOINT LEGISLATIVE HEARING In the Matter of the 2025-2026 EXECUTIVE BUDGET ON TAXES

CHAIRMAN PRETLOW:Thank you.

Let's go over some of the ground rules. The governmental witnesses have 10 minutes for a presentation, and the chairs of the appropriate committees have 10 minutes for questioning.

All other members have three minutes for questions. The rankers have five minutes.

And I can tell we have one person here, you're waiting patiently for us. We have your testimony, if you'd just like to just summarize what your testimony is, then leave room for questions. Otherwise, do your thing.

Thank you.

DTF COMMISSIONER HILLER:(Mic off) -- thank you for this opportunity to discuss Governor Hochul --

CHAIRWOMAN KRUEGER:They're turning it up.

DTF COMMISSIONER HILLER:Oh, okay. It's not me, it's them? Okay, great.

CHAIRMAN PRETLOW:Yeah.

DTF COMMISSIONER HILLER:Thank you for this opportunity to discuss Governor Hochul's Executive Budget and the operations of the Tax Department.

As I suspect you know, the national and state economies showed unexpected resilience last year, including slowing inflation and steady job growth. The Division of the Budget is now projecting a significant budget surplus going into fiscal year 2026, in large measure due to strong personal income tax receipts.

Still, we are facing very real economic and budgetary risks. Nearly half of New York's personal income tax receipts are paid by fewer than 2 percent of New York's personal taxpayers. Our economic fortunes are tied to their economic fortunes. When they have a good year, we see strong income tax receipts.

It's too soon to tell how the current turmoil in Washington will play out, but we know that uncertainty itself can impact the economy. We just saw an unexpected spike in the rate of inflation and a drop in consumer confidence. The president is using trade tariffs to advance both economic and non-economic policy objectives. And efforts to reshape federal spending and the federal government itself will have consequences for New York that we can't yet predict.

What is certain is that affordability remains an enormous challenge in communities across the state. Governor Hochul has proposed a fiscal year 2026 budget that is focused on addressing these challenges. As part of her Affordability Agenda, the Governor's Executive Budget advances several proposals to deliver much-needed tax relief to hardworking New York families.

First, Governor Hochul's Executive Budget would return $3 billion to New Yorkers in the form of a sales tax rebate. Under this proposal, the Tax Department would deliver rebate payments to 8.6 million households this year, providing much-needed relief to help families meet every-increasing costs.

The Governor's proposed budget would also cut personal income tax rates for low- and middle-income taxpayers. When fully phased in, the new rates for these taxpayers will be the lowest in nearly 70 years, providing nearly $1 billion in recurring tax relief to 8.3 million New Yorkers.

At the same time, Governor Hochul is proposing to keep the state's top three tax brackets in place for an additional five years, providing consistency and predictability in the tax treatment of these tranches of taxpayers.

The third prong of Governor Hochul's tax relief package is a historic expansion of the Empire State Child Credit. New York has offered a child tax credit for decades, but the credit only covered children ages 4 to 16. The Governor and Legislature expanded the credit in 2023 to cover children under the age of 4, allowing us to reach nearly 630,000 additional children.

We know that a refundable child tax credit is one of the most effective ways of helping to address the needs of children living in poverty. Building on the recommendations of the Child Poverty Reduction Advisory Council, Governor Hochul is proposing to decouple the state credit from the federal child credit in order to provide significantly greater benefits to even more families.

We will be increasing the maximum credit from $330 to $500 for children ages 4 to 16, and to $1,000 for children under age 4.

We will also be changing the way the credit phases out at higher income levels, and we'll be eliminating the minimum earned income requirement that historically functioned to exclude some of our poorest families. This initiative is a critical step in the state's commitment to cut child poverty in half by 2031.

At the Tax Department we're working to make these child tax credits and other valuable tax programs more readily available to New York taxpayers.

I have long been frustrated that low-income taxpayers too often turn to expensive tax preparers to help them claim the refundable credits they are entitled to under the state's tax laws. Exorbitant fees function to discount the value of these credits, diverting these tax expenditures away from the families they are intended to help.

This dynamic is one of the reasons New York jumped at the opportunity to participate in the Direct File pilot program last year. Direct File allows taxpayers to prepare and file their federal tax returns for free.

New York was one of four states that partnered with the Internal Revenue Service last year to pilot parallel direct-filing tools for state tax returns. Although the pilot was limited in scope and availability, 14,000 New Yorkers used the state filing app to prepare and submit their state tax returns for free, saving $260, about -- or $270.

This year, Direct File is bigger and better. More New Yorkers are eligible to use Direct File to prepare and file relatively simple federal and state returns. Direct File now supports additional types of income and additional types of tax credits, and the income eligibility limits have expanded to cover single filers with incomes up to $200,000 and joint filers with incomes up to $250,000.

We launched the Tax Department's mobile-friendly app when the tax filing season began in late January and, to date, thousands of New Yorkers have used it to file their state returns -- 83 percent in less than 15 minutes, and with a 97 percent satisfaction rate.

In addition to Direct File, New York participates in the Free File program, a partnership with tax software providers that allows eligible taxpayers to use tax preparation software for free. For many years we've run a companion taxpayer assistance program where members of Team Tax help eligible New Yorkers use Free File software to prepare and e-file their returns, building skills those taxpayers go on to share with their family and friends.

The team that built our Direct File app is part of an army of IT administrators and IT professionals who are replatforming and modernizing the core IT systems that power the Tax Department. We are now in Year 4 of this five-year project, still on time and on budget, and we're really starting to see the fruits of their labor.

We are currently rolling out a new wage and withholding system that employers and payroll service providers will use later this spring to file 600,000 first-quarter wage and tax withholding reports covering 14 million employee records.

This summer we'll be rolling out the new Real Property System Online, or RPSO, which will replace the outdated software used by assessors across the state with new, modern, cloud-based tools that will allow assessors to work more effectively and efficiently. We've been working closely with the property tax assessment community to make sure the new tools will meet their needs and can't wait to see the system go live.

This year Tax will also be launching Secure Choice, a state-sponsored retirement savings program for New Yorkers whose employers do not offer other retirement savings options. These employers will be required to make Secure Choice available for their employees, allowing those employees to use payroll deduction to save for retirement.

We expect to begin on-boarding employers into a limited pilot this June and, assuming all goes well, we'll be rolling out the program to all employers in the fall.

In addition to these signature projects, Tax is always looking for opportunities to improve our interactions with taxpayers. Many taxpayers engage with us online, including more than 7 million Online Services System accountholders. We handled more than 2.2 million calls in 2024, with 431,000 taxpayers opting to get a call-back instead of hanging on hold. More than 62,000 callers were assisted using interpretation services in 32 different languages, and we're currently working on changes to our integrated voice response menus so we can ascertain taxpayers' preferred language earlier in the process. In these and many other ways we continue to strive to improve the taxpayer experience.

As I suspect you can tell, I'm incredibly proud of Team Tax and the work we are doing at the Tax Department. I'm excited about the initiatives we are pursuing and look forward to working with you to move them forward. I'm happy to take any questions.

CHAIRMAN PRETLOW:Assemblywoman Jaime Williams.

ASSEMBLYWOMAN WILLIAMS:Thank you.

So we'll start with questions regarding the Executive proposes to make various changes to the income and eligibility rules for the STAR program, including proposals to require only one resident owner of the property to be at least 65 years old to qualify for the Enhanced STAR; clarify eligibility rules so only income of the owners who as primary residents reside on the property is considered; allow certain property owners who are not required to file income tax returns to maintain their benefit without the need to file income verification worksheets.

How many homeowners are currently enrolled in the STAR program? And what is the participation split between Basic and Enhanced STAR?

DTF COMMISSIONER HILLER:I don't have those numbers offhand, but I can certainly get them to you. And I know that we have millions of properties that are receiving STAR benefits. But I can get you the exact numbers.

Most properties are receiving the Basic STAR program. The Enhanced STAR benefits are going to low-income senior citizens who are property owners. I think the income tax -- combined income tax cutoff is 97,000. And we have hundreds of thousands of Enhanced STAR recipients and millions of Basic STAR recipients across the state.

ASSEMBLYWOMAN WILLIAMS:Has the New York State Assessors Association provided any feedback on this proposal?

DTF COMMISSIONER HILLER:I am not aware of any feedback we've received directly from the Assessors Association. I would expect that they would be generally supportive.

The -- one of the challenges that we have in the STAR program, particularly with regard to the Enhanced STAR program, is that the eligibility rules are incredibly complex and difficult for seniors to navigate. They're difficult for anyone to navigate.

We have a homeowner benefit portal on our website in our Online Services System that folks can use, for example, to enroll in STAR direct deposit. And one look at that, at the complexity of the registration process, will tell you that the rules around STAR are very complex. And they're complex in ways that I don't think are achieving the overarching goals of the STAR program.

For example, we're talking about the income -- you know, which owner's income is considered when determining STAR eligibility. We look at the income of both the owners who are resident on the property and the owners who are not resident on the property and their spouses.

And so, first, if the -- you know, I inherited a home with my brother, my brother lives in Arkansas, I'm the one who lived in the house and cared for dad, I'm still in the house, but it's not my income alone that matters here. Even though I'm the one who's in the house and still living in the house, we also need to try and measure the income of the brother in Arkansas and that brother's spouse.

The Tax Department doesn't have the ability to verify that income efficiently because that income isn't being reported to New York. So we're not effectively using that as a measure, and I don't think that measure is one that speaks to whether or not the occupants of that property, that home, are able to meet their tax obligations here in New York.

So by trying to ease that complexity, we think we will allow the Enhanced STAR benefit to reach the families that we want it to reach, as opposed to having people sort of default out of the system because it was too complex to navigate.

ASSEMBLYWOMAN WILLIAMS:Okay. You've actually answered other questions that I had, too, as to the barriers and so forth. And it's really great that you guys acknowledge that, because sometimes it can be very, very confusing.

DTF COMMISSIONER HILLER:I think the STAR program has become very confusing. It dates back to the '90s, and every couple of years a new situation arises and then we do a legislative fix to address that situation. And what we have done is made the program very complex.

I think it's complex for every property owner, and especially complex for our seniors. And I think our seniors -- we're providing enhanced benefits because we understand that our seniors are facing different challenges in terms of the affordability of their homes. And that mix I think is just not where we want to go as a state.

This will ease administration for the Tax Department, for assessors, and for property owners, and we think that this is the time to get it done.

ASSEMBLYWOMAN WILLIAMS:Okay. I think I'll yield my time. If there's any other questions, I may come back.

CHAIRMAN PRETLOW:Okay.

CHAIRWOMAN KRUEGER:Thank you.

Our chair, Senator Gounardes, from Brooklyn.

SENATOR GOUNARDES:Thank you. Good morning, Commissioner. How are you?

DTF COMMISSIONER HILLER:Good morning.

SENATOR GOUNARDES:I want to start quickly with -- I have a bunch of things to cover.

But first, there was a proposal in the Governor's budget to eliminate the requirement that IDAs report the value of their sales tax exemptions to DTF. And they argued that it was redundant, a redundant reporting mechanism.

Can you comment on that? Is it redundant? And do you need that information?

DTF COMMISSIONER HILLER:Yeah. So IDAs report certain tax-related information to the Tax Department, but they have much more robust reporting requirements to the Authorities Budget Office, including this particular sales tax exemption information.

The Tax Department is able to get that information from the Authorities Budget Office, either directly or through their online PARIS system. And so we have access to the information, but it is a duplicative requirement that requires IDAs to report separately to us from their overarching ABO reporting requirements, and requires us to process those one-off reportings to us differently.

We think we can be more efficient and it will ease a burden on IDAs without changing in any way how we oversee IDAs.

SENATOR GOUNARDES:Thank you.

And it's helpful looking at the tax expenditure report that your department puts out. It's easy to see that that exemption, for example, last year was $86 million in foregone sales tax revenue. Right?

And so my initial concern is without the reporting, we lose the finding there and the publication of that finding. And so even if we remove this reporting requirement, will you still be able and will you still publish that value in the Tax Expenditure Report as you guys have been?

DTF COMMISSIONER HILLER:I think as a practical matter we're using the ABO reporting now.

SENATOR GOUNARDES:I'm sorry?

DTF COMMISSIONER HILLER:I think as a practical matter we're using the ABO reporting now.

SENATOR GOUNARDES:Okay.

DTF COMMISSIONER HILLER:We receive it separately, but we can grab it from there in a one-stop that is easy for us to use. So we're using that reporting.

We get those reports from IDAs, and we could lean back on them if for some reason the ABO stopped operating. But I don't see that day. I think the ABO is performing important functions for the state.

And again, for IDAs, the sales tax exemption reporting to the ABO is one piece of a much larger set of reporting obligations that IDAs have to the ABO. So they're undertaking that reporting to the ABO in a different focused way than the one-off exemptions that they're reporting to the Tax Department.

SENATOR GOUNARDES:Thank you.

Going back to the Tax Expenditure Report, which I find illuminating, just a couple of weeks ago I kind of put out a quick analysis looking at some of the things that we exempt, some of the things that we forego in tax revenue, trying to total up some of the loose change that we leave on the table.

You know, found quite a bit of money -- you know, 3 billion-plus. One of the things that I saw in just the report that you guys put out this week, you know, we forego more than $600 million in sales tax revenue because we exempt people who buy gold bars from paying that tax -- $600-plus million, according to your estimates in the most recent fiscal year report.

Do you have a sense of who's buying those gold bars that we're giving that tax break to?

DTF COMMISSIONER HILLER:I think -- my understanding, although I've never gone to see the space, I probably wouldn't be allowed in, is that there are a couple of depositories for gold bullion deep underground in the city. And the ownership of that gold bullion may change on paper, but the gold bullion itself does not move.

And that makes all those transactions that are happening here in New York that could be taxable if we imposed sales tax on them.

We are taxing capital gains on the trading in that gold bullion, so it's not that there isn't a pathway for taxation there. But I think the historic rationale for this exemption, which was put in place long before I was involved with taxes in New York, is that it would be hard to move that gold, but it would be a one-time move. And they could relocate that gold to another state, and then all of the transactions about the ownership of that gold -- which isn't itself moving, it's not -- I don't buy it and take it home, it just sits there in the same place -- that a one-time move of that gold bullion out of New York would drop away all of that potential sales tax revenue that we think we might be getting if we remove the exemption, while further sort of diminishing the state's place in the financial services industry as a locus for that industry in the United States.

Our share of that industry is declining every year as the growth has happened -- you know, we're relatively steady in New York, but the growth in that industry is happening elsewhere. And I think the gold bullion here is an example, an artifact of some of our place in banking and investment markets. And if they figure out how to move it once, then it's over.

SENATOR GOUNARDES:Thank you.

Last year there was a proposal to basically continue a 50 percent -- I believe it was a 50 percent credit towards charitable contributions for income filers over $10 million. That's the only -- as I understand it, the only item itemized deduction that we let those high-income earners continue to claim even a piece of. I think the rest of them kind of drop off around the 450, $500,000 income level, they start to drop off at the itemized level.

Do we have a sense of a breakdown by income bracket who is claiming that itemized deduction?

DTF COMMISSIONER HILLER:For charitable contributions?

SENATOR GOUNARDES:For charitable contributions.

DTF COMMISSIONER HILLER:I certainly don't have that offhand. We might be able to get that from our study files. I can certainly talk to our data analytics folks and see if we can figure that out. I would assume that we can identify that on our returns.

You know, I think this is -- we don't have the same limitations on deductions as the federal government does. But we have a particular limitation on these deductions here in New York. We also have some other provisions to make sure, for example, that we don't attribute charitable contributions that occur in New York to help determine residency here in New York. I think that's because we do have a significant sort of philanthropic activity in New York, and we want to balance the investments in, for example, our cultural institutions against the cost to the state of allowing those deductions.

That's a balance that certainly the Tax Department doesn't choose. But we can certainly try to get you information about that.

SENATOR GOUNARDES:Yeah, I'm just curious about the breakdown.

And similarly in that same vein, you know -- I guess you don't have this information handy, but I'd also appreciate follow-up on the bracket breakdown for filers who claim the college credit tuition deduction -- I mean, itemize that -- as well as the mortgage interest deduction.

Because it's my understanding that 90 percent of New York filers are not itemizing, and so I want to just get a sense of that 10 percent, what is the income distribution of that 10 percent who are itemizing.

And these are costly deductions. They might be the right investments, but I think we need to know who's getting these investments.

DTF COMMISSIONER HILLER:Sure. Sure, absolutely. We can certainly try to get that information.

Again, I think that that will be a data analytics exercise against our study files.

SENATOR GOUNARDES:And switching in the last couple of moments here, there's obviously a lot happening at the federal level right now, there's a lot of churn.

DTF COMMISSIONER HILLER:Yes.

SENATOR GOUNARDES:A lot of churn. What -- with all the discussions around the renewal of the TCJA, what are you paying most attention to, what is the department paying most attention to with this renewal? What should we have on our radar as it relates to the impacts on New York's code -- where we've decoupled, where are we still coupled, et cetera?

DTF COMMISSIONER HILLER:I think we're looking at the non-TCJA provisions that are at issue most. I mean, we're certainly paying attention to the SALT cap, which has had devastating impacts on the state and state taxpayers.

But for the most part, we took action in 2018 to respond to the 2017 tax cuts, and we're in a relatively okay place with regard to those tax changes that are set to expire.

And what worries me are the other potential tax changes that could come together, especially last minute as final deals are being made, because we don't -- we didn't have very much time to respond to the 2017 TCJA tax changes, and that forced us to make some very broad-based changes. We broadly decoupled from a lot of federal tax changes because we didn't have time to have a more measured approach to those tax changes to decide which ones would work for us and which ones wouldn't. And then we had to go back the next year and the year after that to sort of fine-tune those choices.

And so if we find ourselves again where tax changes are being made without a lead time for the impact of those changes, we may find ourselves jammed with potentially significant changes to our underlying tax base because the federal tax base is changing.

So changes to the income tax base, changes to the appropriate tax base could all have flow-through consequence to New York if we don't just broadly decouple. And I don't think broad decoupling is ever really the right answer. We -- I think we want to have enough time to be deliberate in how we navigate the changing landscape in the federal tax code.

SENATOR GOUNARDES:Okay, thank you. I'll have a couple more for Round 2. Thank you.

CHAIRMAN PRETLOW:Assemblymember Bailey for five minutes.

ASSEMBLYWOMAN BAILEY:Good morning. Thank you very much. It is -- I appreciate you being here. And I just have to say real quick I was a former county clerk, and working with your team over the years, they've been great. So please share that with them. I appreciate that.

DTF COMMISSIONER HILLER:Absolutely. We have a great team at Tax.

ASSEMBLYWOMAN BAILEY:My question initially is going to be around outmigration and the implications that that could have potentially on us.

So the Governor is proposing the five-year extension on the increased taxes on the -- for the ultra-millionaire tax. And every year we seem to face troubling data on the number of individuals who are no longer here. You had mentioned in your testimony that nearly half of New York's personal income tax receipts are paid by fewer than 2 percent of our taxpayers.

Since these rates were first enacted in 2021, what is your office seeing in terms of the number of filers with incomes of more than $1 million per year?

DTF COMMISSIONER HILLER:The number of taxpayers -- we call them income millionaires, or sometimes just millionaires. But we're talking about taxpayers who report a million dollars in income, not who have a million dollars in assets. I think that's very different and an important distinction to make.

We saw a huge uptick in the number of income millionaires in New York in 2021 because it was a huge capital gains year. That dropped away in 2022. I'm told that in twenty-twenty -- so we just finished our analysis of Tax Year '23, which are the returns that were processed in 2024. So it's also important to remember that there is a bit of a lag in that data because we're looking at returns that are retrospective reporting of tax income -- of income and deductions in behavior.

In -- I'm told in Tax Year '23 we had five more income millionaires than we did the year before, bringing us to about 86,000. And that trend again sort of depends on the economy in a particular year.

We have a lot of people who may go just above that million threshold or just below that million-dollar threshold from one year to the next, and so we can see variability. One particular taxpayer might be above and then below and then above and then below, depending on their particular tax situation. And a lot of our income millionaires are receiving a significant amount of their income through capital gains and other unearned income sources that vary with the economy in a different way than wage income tends to.

So we have a relatively steady number. We see outmigration of millionaires. We see outmigration of New Yorkers, net outmigration of all New Yorkers at every income level. There is data on our website, we have Tax Facts data, we just updated it this week with the information from the Tax Year '23 study file.

And I encourage you to go there and look at that. We have data, we have tables, we have charts, some of them are really colorful --

ASSEMBLYWOMAN BAILEY:Thank you very much. I did look at that, and it appears that most folks are heading down south. It looked like Florida, Texas.

DTF COMMISSIONER HILLER:We do -- I think Florida and Texas are certainly places. I think we all know people who have made that move to the Sun Belt for a lot of different reasons -- some for economic reasons, some because the weather's better.

You know, I think one of the things I found most startling is that we have net outmigration. We have people who leave and people who come in. Florida has people who leave and people who come in. We have more people leave New York than leave Florida, but that differential isn't huge. It's an in-migration problem that is driving our net outmigration numbers.

ASSEMBLYWOMAN BAILEY:I have one more question I want to get in, and I have a minute and 13 seconds left.

DTF COMMISSIONER HILLER:Sure.

ASSEMBLYWOMAN BAILEY:So I'm going to shift back to STAR real quick.

DTF COMMISSIONER HILLER:Of course.

ASSEMBLYWOMAN BAILEY:It is nice to see that that -- some of the complexity is coming down in that.

One question I do have. When we're looking at that, do we know what that impact is going to have on your department as far as being able to determine the eligibility for these individuals now? Because I am assuming we're going to see an increase in who are going to be eligible for STAR.

And what -- will that also have an impact on our local assessors?

DTF COMMISSIONER HILLER:We think it will reduce the complexity of income eligibility determinations both for the Tax Department and for local assessors.

The Tax Department does income eligibility verification for all STAR beneficiaries, both exemption and credit recipients. Assessors assist property owners in navigating that process. And we also have some taxpayers who don't file tax returns.

One of the things that we're also simplifying here, for property owners who don't have a tax filing obligation because their incomes are too low or their income sources aren't taxable, they file income worksheets with us. And we have to do that process every year. It is a manual process, it's complicated. And we -- we're going to eliminate that. If you've qualified twice, you're going to be done.

CHAIRMAN PRETLOW:Thank you.

ASSEMBLYWOMAN BAILEY:Thank you very much.

CHAIRMAN PRETLOW:Senator?

CHAIRWOMAN KRUEGER:Thank you.

Senator John Liu.

SENATOR LIU:Thank you, Madam Chair. And thank you, Commissioner, for coming today.

How long have you been acting commissioner? You should be real commissioner.

DTF COMMISSIONER HILLER:I've been acting commissioner for nearly four years. As I think some of you know --

SENATOR LIU:Okay. I'm not sure why the delay. You clearly are qualified for this. So hopefully the Governor will --

DTF COMMISSIONER HILLER:There are actually some retirement consequences for me if I moved into the commissioner role. And as I joke --

SENATOR LIU:Oh, so you don't want to be.

DTF COMMISSIONER HILLER:As I joke often, you want people with good judgment in a role like mine. And I would lose some significant retirement benefits if I moved there, and I just can't get there.

SENATOR LIU:I see. Got it. So that's your preference, then.

DTF COMMISSIONER HILLER:Yes, absolutely.

SENATOR LIU:I see, all right.

I wanted you to talk about this new program that I don't know why I haven't heard of before, Secure Choice. So is that something that's going to be rolled out in Tax Year 2025?

DTF COMMISSIONER HILLER:We expect to roll it out this year.

The Secure Choice journey has been a long one. I think the legislation authorizing Secure Choice was first enacted in 2018, but it was enacted in a way that made the program untenable. The program as originally enacted was voluntary for employers, so employers would have an option to provide a pathway --

SENATOR LIU:So this program is compulsory.

DTF COMMISSIONER HILLER:It is compulsory --

SENATOR LIU:For?

DTF COMMISSIONER HILLER:For employers with 10 or more employees who do not offer retirement options. They aren't paying anything, but they have to make the program available to their employees.

SENATOR LIU:And will the state -- meaning your department -- keep track of the accounts, the contributions from the employees?

DTF COMMISSIONER HILLER:We have a program administrator that we have contracted with to be the basic administrator of the program.

If any of you, for example, might have participated in the state's deferred compensation program, that -- if you go to their website, that website is being operated by Nationwide, is the program administrator. It's responsible for the core accounting under the supervision of a board.

SENATOR LIU:So the employees in this -- participating in the Secure Choice program, would they also get the tax benefits such as --

DTF COMMISSIONER HILLER:Yes, absolutely. It's sort of an auto-IRA program. We had to go back and amend the original 2018 law in 2021 to require employers to make this program an option for their employees.

SENATOR LIU:And do they get tax {unintelligible} just for New York State income tax or federal income taxes?

DTF COMMISSIONER HILLER:For both. For both state and federal.

SENATOR LIU:I see. That's good.

DTF COMMISSIONER HILLER:It is -- it is a retirement -- it's similar to a 401(k) or a 457B or other type of retirement program.

We think it's an important opportunity. It took a little while, again, to get it off the ground, but we have contracts in place for a program administrator and --

SENATOR LIU:Well, thank you. hopefully we get this off the ground.

DTF COMMISSIONER HILLER:Yeah, absolutely.

SENATOR LIU:Just a real quick response to one of your statements. You said we have a net outmigration --

DTF COMMISSIONER HILLER:Yes.

SENATOR LIU:-- of millionaires.

DTF COMMISSIONER HILLER:Of everybody.

SENATOR LIU:Okay. But would you -- so it's a net migration --

DTF COMMISSIONER HILLER:Yes.

SENATOR LIU:-- of millionaires? Because there are lots of millionaires moving to New York also.

DTF COMMISSIONER HILLER:We have -- we have a net outmigration in all income categories. Except, I think, a couple of young people -- young people --

SENATOR LIU:Thank you.

(Unintelligible overtalk.)

CHAIRMAN PRETLOW:Thank you, Madam Acting Commissioner.

Assemblyman Otis.

ASSEMBLYMAN OTIS:Thank you, Commissioner. And thank you for your very thorough answers to everybody's questions. I think people appreciate that.

My question relates to a sense of the state of play in terms of cybersecurity threats and how the department is working with other state agencies to continue to protect us in an evolving situation.

DTF COMMISSIONER HILLER:New York State -- the New York State Tax Department is supported by the Office of Information Technology Services. The state has a chief cybersecurity officer, and ITS is responsible for the core cybersecurity initiatives that are safeguarding state information, including state tax data.

We have -- we are subject to rigorous state and federal data security requirements around tax data. And we work closely with our colleagues at ITS to make sure that we are properly safeguarding that data. Those requirements aren't new, but they evolve every year. And I think our state cybersecurity efforts continue to evolve as the threats keep on changing.

ASSEMBLYMAN OTIS:That's great. So you're confident that we're doing everything we need to be doing for the moment.

DTF COMMISSIONER HILLER:I am -- I think we're doing everything we need to be doing.

I remain always concerned that despite all of our best cybersecurity efforts, a careless action by an individual could expose a state system. And so we are constantly training employees at Tax around being cautious in their handling of other seemingly routine things. We train to make sure that people don't click on links, because it's easy to expose a system. And at the Tax Department we are incredibly focused on making sure that our employees aren't creating those risks.

ASSEMBLYMAN OTIS:Thank you for that answer, and thank you for the great job you're doing.

DTF COMMISSIONER HILLER:Thank you.

CHAIRMAN PRETLOW:Thank you.

CHAIRWOMAN KRUEGER:Thank you.

Next, Gustavo Rivera.

SENATOR RIVERA:Thank you, Madam Chair.

Hello, Commissioner.

You were cut off right at the end of Senator Liu's questions, but I was very interested in the answer. If you can tell us a little bit more about outmigration, in-migration, and some of the folks that are leaving, particularly since we hear endlessly about how tax policies make, you know, wealthy people run away, when there's many of us who believe that there's other policies that we follow that make it harder for working-class folks to remain in the state.

But tell us about some of them just in straight-up numbers.

DTF COMMISSIONER HILLER:So I think the first and mainly main thing I want to do is I want to refer you to our website.

On our website we have a tax data drop-down, and that will bring you to what we call Tax Facts. And there are a lot of charts and tables around tax migration. One of my -- we have a chart that is looking at in-migration and outmigration rates historically.

Our rate of net outmigration dropped, has dropped in the last couple of years. We saw it really spike during the pandemic, which I don't think surprises any of us. But we are seeing our outmigration rates return to more historic pre-pandemic levels.

We did see a spike in outmigration of our highest-income New Yorkers in the year we increased our tax brackets. And then it dropped down to -- it started returning more towards historic levels.

I'm not in that tax bracket, so I'm not sure exactly why. But my assumption is that the people who were sensitive to those tax changes left and those who weren't sensitive to those tax changes are still here. And so they stopped leaving. They weren't sensitive to that.

We have also a heat map, I think they call it, that is looking at -- where you can see visually, based on shading, where the hotspots are for outmigration by age and income level. So we see in-migration for young people in sort of those upper-middle-class brackets, folks who are coming and landing their job in New York. And we see outmigration in most other age and income brackets.

But I think that that's a really good way to get a sense of that. And I really encourage you to look at some of those charts because I think that you'll find that really informative about where these changes are.

But again, when I look at the data, it looks to me like our rates of outmigration, while significant, have always been true. We have always had outmigration in New York.

SENATOR RIVERA:Tell me, just because we have so little time --

DTF COMMISSIONER HILLER:Sure.

SENATOR RIVERA:-- it's the -- which website again? Just because I'm --

DTF COMMISSIONER HILLER:So if you go to tax.ny.gov, there's a tax data and statistics drop-down. And when you get there, there is -- one of the first things you get is Tax Facts.

SENATOR RIVERA:Got it.

DTF COMMISSIONER HILLER:And you'll see a ton of charts and graphs and tables. You can view things as charts and as data tables. Take a look. It's great.

SENATOR RIVERA:Thank you so much.

Thank you, Madam Chair.

CHAIRMAN PRETLOW:Thank you.

Assemblymember Miller.

ASSEMBLYMAN MILLER:Thank you.

And thank you, Acting Commissioner, for your testimony.

DTF COMMISSIONER HILLER:Thank you.

ASSEMBLYMAN MILLER:My question is on the Farm Employee Overtime Credit.

DTF COMMISSIONER HILLER:Sure.

ASSEMBLYMAN MILLER:The Farm Employee Overtime Credit was the Governor's solution to keep New York State farms viable after the state implemented harmful, costly regulations on farm overtime. However, not all New York State farms are eligible for the credit, creating a dire economic hardship for these farms.

The Senate and the Assembly unanimously passed a bill last year to fix this so all farms would be eligible. The Governor vetoed the bill and instructed the Departments of Ag and Markets and Tax and Finance to work with the Legislature to put a solution in the budget.

Okay. Commissioner Ball shared with us that his department is working to find a solution. What is your department doing to find a solution?

DTF COMMISSIONER HILLER:We are also working to find a solution.

I think it's important to understand that the legislation that the Legislature passed last year was -- would not have changed eligibility for the Farmworker Overtime Credit. There were some technical issues with that legislation that meant that it would not have actually changed anything about the eligibility for the credit.

And that's because the credit is framed for taxpayers who earn their living from farming, who are farmers. And so although the legislation I think was intended to capture those farmers who use a separate entity to manage their labor costs, those separate entities aren't farmers.

And so where the underlying eligibility test is are you a farmer, that wasn't being changed in that legislation. And so that legislation was not going to expand eligibility for anyone.

I think that test of "are you a farmer" is an important one. It's been in place for a long time in New York across a range of benefits that are driven to farmers. But it gets a little tricky when we try to expand that concept to capture other entities that are providing labor to a farm, particularly in the context of overtime.

I expect that we will be engaging with your teams as part of the budget process when the negotiations sort of take off in earnest, and I'm confident we'll find a solution.

ASSEMBLYWOMAN MILLER:Okay. So I'll just answer the question: There is a viable path moving forward --

DTF COMMISSIONER HILLER:It's a complicated one. I think it's going to be a complicated one and we're probably going to have some serious conversations about how to craft a solution that reaches those entities while ensuring that we're only paying for farmworker overtime that -- you know, for overtime wages that are being triggered by farming.

ASSEMBLYWOMAN MILLER:So do we feel that that's something that we can accomplish even though it's relatively --

DTF COMMISSIONER HILLER:Yeah, I'm confident we can get there. I think, you know, we're leaning in, I'm sure Ag & Markets is leaning in, and I think we'll get there.

ASSEMBLYWOMAN MILLER:Thank you, Commissioner.

CHAIRWOMAN KRUEGER:Tom O'Mara.

SENATOR O'MARA:Thank you.

Good morning.

DTF COMMISSIONER HILLER:Good morning.

SENATOR O'MARA:Thanks for being with us.

An area that's been a significant concern of mine in recent years is the loss of financial services jobs from the state. I think in the last two years Texas now has more financial services jobs than New York State for the first time ever. Very concerning.

Even more concerning now is that the New York Stock Exchange has announced they're going to open a Dallas exchange.

What are we doing from a tax perspective to protect the financial industry that we have in New York State and the loss of that to other states? You know, it's about 20 percent of our total tax receipts in the state; 84 percent of that is from personal income taxes. So every job we lose to Texas is a loss of a -- presumably a high-income earner going.

So what are your thoughts on the loss of these jobs and the significant portion of our total tax revenues that we get from this industry?

DTF COMMISSIONER HILLER:One, as I think I mentioned earlier, we certainly at Tax are paying attention to changes in the financial services industry because it is such an important component of the state's economy and a significant source of state tax receipts.

And to be clear, New York remains the center of the financial services industry in this country. But we're seeing growth in that industry in other states instead of in New York. And I believe --

SENATOR O'MARA:Well, they have more jobs in Texas than New York --

DTF COMMISSIONER HILLER:Right, where those jobs are going in other places.

I think there's a combination of things. One, we enacted significant corporate tax reforms in 2015. We finally finished the regulatory process for that in 2023. It's been a 20-plus-year journey to restructure our tax code to align with federal changes that allowed for financial service entities to be engaged in activities that crossed our historic tax types. And so we combined them together.

Before those reforms, we were getting about half of our tax receipts from complex corporate taxpayers in the financial services industry on audit, because it was very difficult to fit their activities into our tax structures under the law. And although in some cases they are paying more in taxes, the certainty around the corporate tax law changes that we made I think are really making it possible for those industries to comply in a much more orderly and predictable way, and that that was an incredibly important step that we took.

SENATOR O'MARA:How can you take that position when we're losing jobs to other states and Texas has now surpassed New York on other jobs? That doesn't add up.

DTF COMMISSIONER HILLER:I think there are a couple of different things.

One, I think that we have -- in terms of our tax policy, we have made tax compliance easier for these entities. Although they in some cases are paying more, they are paying more in a predictable way, and that predictability is itself of value.

But there are certainly other aspects of our state's economy and the economy in other states that are driving these changes. Just as we were talking about people who are moving to other parts of the country for tax and other reasons, including affordability challenges, housing challenges and the like, we are seeing financial services firms make a calculation that it's easier for them to grow their business in other parts of the country than to grow them here.

SENATOR O'MARA:Well -- and I'm running out of time and I thank you for your answers. And I've got one more area I wanted to get to.

But, you know, I think perhaps that predictability and knowing that they're going to pay more taxes in New York is leading them to leave New York because they know they're going to continue to pay more.

But one positive area, an area that we worked on the last couple of years, is reviewing the Excelsior Jobs Program. And the report and review of that showed a positive return on investment of $5.25 for every dollar invested.

And I'm glad we're continuing that program, extending it, and I think that's been a very successful program over the years.

But another one that was also reported on was the Film Tax Credit. And we get a 31-cent return on every dollar, yet we're continuing to waste $700 million a year on that industry.

Can you justify why we're continuing to spend $700 million on a program that has a negative rate of return?

DTF COMMISSIONER HILLER:I think you're referring to the Independent Tax Expenditure Study that the department commissioned at the direction of the Governor and Legislature.

I think that report itself took a very narrow view of the return on investment from our tax expenditures, and measured that return on investment only in terms of the actual number of dollars, state tax dollars that were generated by the state tax investment we made.

But that report made clear in the context of the film credit and other credits that there are intangible benefits to these investments that are not just metric in terms of state tax receipts that are generated.

CHAIRMAN PRETLOW:Thank you.

Assemblyman Ra.

ASSEMBLYMAN RA:Thank you.

We've talked about this issue a number of times. You know, we had enacted these restrictions a few years ago on flavored e-cigarettes. Obviously there is a dichotomy, I call it maybe even an inconsistency in the way we enforce tobacco and enforce these types of products.

And I know there are a lot of illegal products out there that come from China; they're not FDA-approved, so we don't even know what's in them. And I know you're not one to really offer an opinion necessarily about what we should be doing.

But, I mean, does it make sense to maybe consolidate the enforcement of both of these types of products under Tax & Finance? Because it seems like you guys have the resources and are out there and doing a good job, whereas DOH doesn't necessarily have that when they're trying to deal with these types of products.

DTF COMMISSIONER HILLER:So thank you for that question.

The Tax Department enforces taxes. We have specific provisions in our tax laws that authorize us to engage in very specific kinds of criminal enforcement with regard to tobacco taxes and with regard to cannabis taxes.

We do have taxes on vapor products, but there are no enforcement provisions in the Tax Law associated with them beyond penalties for filing a late return and the like. We do not have the same kind of enforcement responsibilities or authority that we do for tobacco and for cannabis under the law.

There certainly are tax issues here. If a vapor product is being sold illegally, it's unlikely to be properly taxed too. But in order to have the Tax Department engage in the kind of civil and criminal enforcement responsibilities, we would have to be enforcing a regulatory scheme around vapor that doesn't exist in the law today.

ASSEMBLYMAN RA:Okay. A totally different subject.

The pass-through entity tax, I know businesses have been asking for flexibility on the election date. We have this proposal in the Executive Budget to extend to September 15th. But I have heard some concerns about this new provision that the election could be invalidated for nontimely payment.

Is the department considering these concerns? Is the availability of penalties and interest sufficient rather than, you know, invalidation?

DTF COMMISSIONER HILLER:We have certainly heard those concerns.

I mean, I think that the businesses that avail themselves of PTET have long been seeking to have the election moved to September from March because it allows them to have a better sense of whether PTET would help them.

I think it's always been a cash-flow concern for the state because that first estimated payment comes in March, at the end of one fiscal year, and moving the election to the end of September moves that payment into the next fiscal year. So there's a spin-down effect from moving that.

The language in the Executive Budget is the same language that we had in 2022 when the election date was moved from March to September. And I think the intention there is to ensure that we don't have significant disruptions to our cash flow by moving the election date.

I'm certainly open to finding ways to work through those issues with your staff and the business community. I think that's how we are trying to approach every one of the business tax proposals that we have and generally try to do business.

ASSEMBLYMAN RA:All right, thank you.

And then in December 2023, by contract, we had the comprehensive report issued on economic development tax credits. I know many of us have expressed concerns, you know, yesterday to Commissioner Knight with regard to a lot of these programs.

But I do note that the -- you know, we required, obviously, this report, but even the authors kind of commented on the overly broad scope. So just wondering if you have any take on whether a reporting requirement that we were looking more in depth at a smaller number, rather than trying to be so broad in looking at all of these programs at once, if that would get us better information as to the effectiveness of the programs.

DTF COMMISSIONER HILLER:You know, I don't know if it would get better information. I think the challenge is in defining the goals for the investments we're making and then figuring out how to measure whether those goals are being achieved.

And I think, you know, at the end of the day the Tax Department isn't making these programs available. And so we can -- I sometimes -- you ask me about these programs and I have to guess at why we're doing them. I think that's where the challenge would lie.

ASSEMBLYMAN RA:We do sometimes too have to guess.

Thank you.

CHAIRWOMAN KRUEGER:Senator Shelley Mayer.

SENATOR MAYER:Good morning, Commissioner. Good to see you.

On the Enhanced STAR changes, do you have a sense of how many additional people will be eligible for Enhanced STAR under this change if it's enacted?

DTF COMMISSIONER HILLER:I think we estimate the total fiscal for the state at about $9 million in changes. Which, you know, about $1100 a family, is -- you know, there's some math there. We could figure that out.

It's -- I think the main point here is that the -- the eligibility constructs that we're using here are functioning to exclude people that I think we always intended to have be eligible for Enhanced STAR. And that complexity is deterring people from entering into the process.

SENATOR MAYER:Yes.

DTF COMMISSIONER HILLER:And so we -- it's going to be a very modest gain. But it will be a significant simplification for folks.

SENATOR MAYER:Right. But you don't have right now the number --

DTF COMMISSIONER HILLER:No, but I could probably do it in my head.

SENATOR MAYER:Co-ops will still be included, co-ops and condominiums?

DTF COMMISSIONER HILLER:Yes. Yeah, we're not changing the scope of coverage of these programs, we're just changing like which incomes we're looking at.

SENATOR MAYER:Yes, understood.

DTF COMMISSIONER HILLER:Yeah.

SENATOR MAYER:What about the process of challenging a determination of Tax & Finance? Does this require additional staff on your part? And how long does the department have to make a decision on an appeal?

DTF COMMISSIONER HILLER:We handle those appeals expeditiously. It's not going to take additional staff for us. If anything, we expect that the number of challenges will likely go down.

One of the things that is certainly frustrating for us is that I think there are a lot of tax property owners who don't understand why they were not eligible when it was an income disqualification. And we're looking at their tax return, and you're not qualified, based on that.

So we don't see a ton of reversals of appeals of these eligibility determinations, because for the most part they're really straightforward. We looked at your tax filing, and your tax filing said this, and therefore you're not eligible.

SENATOR MAYER:I understand.

But is there a requirement in your proposal as to how quickly you must determine -- from a consumer point of view.

DTF COMMISSIONER HILLER:I don't believe so. I don't believe so.

There are -- I think there are a myriad of changes we could make to start to simplify it, and that could include some additional changes to the STAR program that I think would make the protest process more straightforward.

I think not consistent between the credit and the exemption, between the basic exemption and the enhanced exemption, because those laws have evolved at different times. And we could also strive to simplify that. You might see that proposal next year.

SENATOR MAYER:We need simplification. It's extremely hard for an individual homeowner to figure out.

DTF COMMISSIONER HILLER:It's very hard, yes.

SENATOR MAYER:So I'm interested in that.

I have one more question. How much staff does Tax & Finance have?

DTF COMMISSIONER HILLER:We have just under 4,000 right now.

SENATOR MAYER:Okay, thank you.

CHAIRMAN PRETLOW:Thank you, Senator.

I just have a couple of questions, Madam Commissioner.

The Governor is proposing a middle-class tax cut for certain taxpayers. It's a three-part question. First, who is not eligible for this? I never know who the certain taxpayers are. So who is not eligible for this tax cut?

When will it kick in? And will you be adjusting the tax rate tables this year, or is it next year?

DTF COMMISSIONER HILLER:The proposal would cover taxpayers up through -- I think it's 323,000 for married filing jointly.

CHAIRMAN PRETLOW:Right. Right.

DTF COMMISSIONER HILLER:Those tax brackets. So the tax brackets above that are 6.85 or 9.3 or 10 point -- 9.65 or 10.3 and our 10.9 brackets would remain unchanged. For taxpayers reporting more than $323,000 for joint filers, it's ties about 160 --

CHAIRMAN PRETLOW:Taxpayers under that, that max, that aren't eligible, who would that be?

DTF COMMISSIONER HILLER:For the tax credit, those would be those taxpayers --

CHAIRMAN PRETLOW:So everyone that makes less than $323,000 is eligible?

DTF COMMISSIONER HILLER:Yes, they would all -- the proposal is to reduce our income tax brackets by one basis point this year and by another basis point next year. The proposal would bring our tax rates to the -- to essentially the lowest tax rates since 1934. We had a zero rate in 1958, which makes it a blip. But otherwise we're going back to 1934 when we imposed the income tax.

The first tax rate change would be for tax year '25, for this year. The second basis point change would be for next year. That would be recurring relief going forward from there.

CHAIRMAN PRETLOW:Okay. And the Governor is also proposing a -- I think we're calling it an inflation refund that totals around $3 billion for people earning less than $300,000 -- taxpayers filing less than $300,000.

When will those checks be sent out to the taxpayers, do you know?

DTF COMMISSIONER HILLER:We would be sending them out later this year.

I think the specific timing would have to fall around our STAR check mailings. We have some timing obligations under the law around when we deliver STAR credits as compared to their billing cycle, so we would be sliding these rebate checks in around that mailing schedule.

CHAIRMAN PRETLOW:And what recourse will the taxpayers have if they don't receive a check by the end of the year?

DTF COMMISSIONER HILLER:These rebates are structurally income tax credits. That's how we deliver these kinds of check programs historically. And so they would have all of the recourse that would be available to them for any personal income tax matter.

CHAIRMAN PRETLOW:Okay. And just a back of the envelope calculation in your head, if we reduce the max income from 300,000 to 150,000, do you know -- can you estimate what that number would be? I know there would be more people less than than above, so it wouldn't be half.

DTF COMMISSIONER HILLER:Yeah, I mean, we're -- the program is intended to deliver -- as proposed would deliver checks to 8.6 million households. It's joint filers with incomes up to $300,000 and single filers with incomes up to $150,000.

I think if we dropped the income level we would see a marginal decrease, but not -- it wouldn't drop in half because we have more taxpayers in lower brackets.

CHAIRMAN PRETLOW:Right. Exactly, yeah.

So it wouldn't be that beneficial --

DTF COMMISSIONER HILLER:You know, if we dropped it in half we might drop from 8,000 to -- 8 million to 6 million, maybe.

CHAIRMAN PRETLOW:Okay. Pass-through entities, the Governor is proposing a change in them from April to September filing. How would that affect cash flow?

DTF COMMISSIONER HILLER:So I think that the significant impact of a changed election deadline from March to September would be a cash-flow impact.

Essentially, a one-year cash-flow spin-down, because entities that are electing now in March make a March estimated payment that comes in at the end of the current fiscal year. And if that election is moved to September and their associated estimated payments are moved to September, that makes those payments fall in the next fiscal year.

So that's a cash-flow impact, not an -- and there are some financial plan ramifications for that. But the Division of Budget tells me that we have enough cash on hand to manage that cash-flow impact, and that makes this year a good year to make this change.

CHAIRMAN PRETLOW:All righty. Yesterday we heard from people in the entertainment industry, and they were actually supporting the Governor's proposal to amend the tax credit and extension of the tax credit.

Does the state really benefit from this program? Because some people said that we're just giving away money. Some people are saying that it enhances our respectability in the world. You know, there are different comments on it.

In your estimation, are we making a significant amount of revenue going toward the state to make this whole program worthwhile?

DTF COMMISSIONER HILLER:Well, one of the great things about my job is that that's not my call.

(Laughter.)

CHAIRMAN PRETLOW:I'm going to let that answer stand. Okay?

DTF COMMISSIONER HILLER:I do like movies.

CHAIRMAN PRETLOW:No, that answer stands. I'm not going to pursue that.

As a matter of fact, that was such a good answer I'm going to move on to Senator Krueger.

(Laughter.)

CHAIRWOMAN KRUEGER:Well, it was factually correct. I can't blame you there.

So the Governor is -- well, let me start again. We're all very interested in tax exemptions, tax credits, how they impact the state, whether they are legitimate public policy or giveaways.

And there's been frustration that even for those of us who actually look forward to your Tax Expenditure Report every year -- I know that Senator Gounardes and I are fans of actually reading it. Don't talk about us -- it's very hard to understand how you evaluate with your -- you know, your letter codes in the columns.

Is there a better way to share information with us about what the findings are from each of these tax credits and exemptions?

DTF COMMISSIONER HILLER:So when we're reporting -- so folks are talking about -- we're talking about the Tax Expenditure Report, the most recent one was just posted last week, together with the 30-day amendments.

The reliability level of our exemption estimates depends on how that information comes to us and how clearly defined it is when we get it. We have incredible reliability with regard to some, and some of it we have to estimate in a slightly different way. And we always want to be transparent about that, so we have some obscure coding on the side that helps folks understand that reliability.

We're confident in our estimates, but we want to make sure folks understand that there are different levels of reliability based on the different methodologies we need to bring to the table to reach those expenditure estimates.

That said, again, we're pretty confident in those expenditures. I think the larger question underlying your question is whether it's worth it.

CHAIRWOMAN KRUEGER:Right.

DTF COMMISSIONER HILLER:And again, you know, we can certainly help folks understand how much we're spending, but the goals for why we're making those expenditures aren't necessarily in the purview of the Tax Department. And so that requires a different set of questions to be asked and information to be identified.

You know, if we had a really clear understanding of why we're pursuing a particular program, then we could measure whether we're meeting those goals. But I think for a lot of the expenditures we have, we've had them in place for decades. I think we -- in some cases it's really clear why we're doing it. We're providing a child tax credit because we want to support low-income families with children. Some of the --

CHAIRWOMAN KRUEGER:Right. I'm going to cut you off just because I have more questions.

DTF COMMISSIONER HILLER:Of course.

CHAIRWOMAN KRUEGER:So -- but along that line. So the Governor -- so our own research that we have from a study that we've already referenced was that the Excelsior Tax Credit is one of our more successful programs.

But the Governor is expanding it this year and sort of creating a subprogram which will have different guidelines of eligibility and return. I think it will just muddy the waters.

Can't we just call it a different name and not say "And now Excelsior is this also"? Doesn't that make it just harder to evaluate?

DTF COMMISSIONER HILLER:I'm not sure yet that it will be harder to evaluate or not because we aren't even there yet. It might be that we can evaluate it as effectively.

I think one of the reasons why the Excelsior program is as successful as it is, is because it has a little more flexibility within the program to target our tax credit investments to particular industries. And as compared to tax expenditures that, you know, were made for good reasons 30 years ago and we just continue to do it, I think we have the ability in Excelsior to be a little more nimble.

And I defer to my colleagues at ESD. If they believe that having this -- the new investments in the semiconductor industry be a program within Excelsior and that that will be an effective way to address that, I don't feel like I can second-guess that. I think that this is a program that they're administering successfully, and I would defer to them.

CHAIRWOMAN KRUEGER:And you already answered my colleague about the changing of the timelines for the pass-through entity tax flexibility.

DTF COMMISSIONER HILLER:Sure.

CHAIRWOMAN KRUEGER:But am I hearing you right, this is really just a way to shift revenue into the following year from this year?

DTF COMMISSIONER HILLER:I don't think that we're doing it for the purpose of shifting revenue. I think that taxpayers who are availing themselves of the pass-through entity tax, it's hard to know in March whether it will be a good year or not a good year for those entities. And so they're better able to determine whether the pass-through entity tax will be an effective tool for them as we move further along in the tax year.

And so by allowing -- for some, they know now that it's going to be a good program and they're electing now, because then they can make orderly estimated tax payments. But by moving the election deadline to September, we're giving them the opportunity to have a better view into their year and know whether this is going to work for them.

CHAIRWOMAN KRUEGER:Do we think there will be more entities filing because of this?

DTF COMMISSIONER HILLER:I doubt it. I doubt it.

CHAIRWOMAN KRUEGER:Okay.

DTF COMMISSIONER HILLER:I think that the program is a fairly mature program at this point.

CHAIRWOMAN KRUEGER:Okay.

DTF COMMISSIONER HILLER:I think that, if anything, we will find some -- maybe fewer filing, because they took a shot in March and had to guess whether it would work for them and they were going to be -- it was going to be off the table if they didn't elect in. And now, by waiting till September they might not elect in because they have a better sense that it's not going to be effective for them.

CHAIRWOMAN KRUEGER:Got it. So we already talked a little bit about the coupling or decoupling with the feds and who knows what the feds are going to do. And I get it, it's hard to know unless you know.

We do know that the feds have already announced they're radically reducing the staff at the IRS, which will I assume radically reduce the number of people to both respond to taxpayer questions and correct things before they go wrong. But also it will reduce audits.

So much of what we end up doing is playing off of what the feds did with our federal tax returns. What do you think this is going to do here in New York? Are we going to see a lower return on taxes because people think "Oh, I don't have to file taxes anymore, even, I don't have to follow the rules because the feds aren't looking?"

Or is it going to make more work for us to stay on top of everything? What's your gut?

DTF COMMISSIONER HILLER:Look, I am deeply frustrated and disappointed by the cuts at the IRS. The IRS has been systemically defunded for decades in order to essentially prevent tax enforcement.

And so I've always felt really sort of demoralized by the job that my colleagues at the IRS need to do in order to function. Their technology is massively outdated, they were really understaffed. It was very, very hard to get a phone call answered. I'm not saying that it's easy to get a phone call answered at New York Tax, but it was essentially impossible to get a phone call answered at the IRS.

And so there was an infusion of funds under the Inflation Reduction Act, and that's certainly being undone. And I find that really frustrating.

You know, at New York Tax we engage with our federal colleagues. We do get reports of federal audit changes that can trigger state audit changes. But for the most part, although our tax forms are aligned with the Federal Tax Code, our administration of those tax returns is an independent state function. It is the quintessential state sovereign function, and we aren't engaging day-to-day with the IRS around that.

I think your question also speaks to I think maybe a more sociological challenge that we face, which is that there is this sense that tax compliance is maybe not mandatory.

CHAIRWOMAN KRUEGER:Correct.

DTF COMMISSIONER HILLER:And we have a system where -- in New York our estimate is that about 96 percent of our tax revenues across all tax types is being paid, we call it voluntarily. It's not really voluntarily. It's being paid by people who understand they have an obligation to pay taxes under the law and are meeting those obligations without compulsion. And that's 96 percent of our taxes.

And then we spend all of our agency budget collecting the other 4 percent.

CHAIRWOMAN KRUEGER:Right.

DTF COMMISSIONER HILLER:And there's a balance there. And when you shift that balance, I think that makes it harder for everybody. Now we're going to need to devote more resources to enforcement. If the receipts that are coming in from taxpayers without compulsion drops down from 96 to 94, that's going to be a significant change in our allocation of resources to try to make up for that revenue drop.

CHAIRWOMAN KRUEGER:And the federal data is that the return on auditing wealthier Americans at the federal level is a 12-to-1 of what you spend versus what you get, and it also changes behavior.

And it's clear to me that the feds are going to stop doing audits on higher-income filers. And I think personally that it's going to translate very problematically to us here in New York, and we're going to have to need to focus more on, just like you said, the changing of the behavioral expectations that no one's looking.

DTF COMMISSIONER HILLER:Absolutely. I think there's a very real --

CHAIRWOMAN KRUEGER:I only have 30 seconds left. I just have to -- sorry. ITIN filers, people who don't have Social Security numbers, do you know how many we have and how much revenue we bring in?

DTF COMMISSIONER HILLER:I don't know how many we have. I can certainly get you that.

CHAIRWOMAN KRUEGER:Thank you.

DTF COMMISSIONER HILLER:We do take in --

CHAIRWOMAN KRUEGER:Appreciate it.

DTF COMMISSIONER HILLER:-- returns from ITIN filers.

CHAIRWOMAN KRUEGER:And finally, in 15 seconds, so Elon Musk has all our tax information. How much do we care? I thought we were always very protective of everybody's tax information.

DTF COMMISSIONER HILLER:We are incredibly --

CHAIRWOMAN KRUEGER:Now everybody will have that.

DTF COMMISSIONER HILLER:-- Protective of tax information here in New York. For the most part the information we have in New York is similar -- essentially the same information that the federal government has under -- from federal tax returns.

CHAIRWOMAN KRUEGER:And now a private company who can sell whatever they want.

DTF COMMISSIONER HILLER:I -- there are federal laws that safeguard that information. I'm going to guess that they're not going to be rigorously enforced in the near term.

(Overtalk.)

CHAIRWOMAN KRUEGER:I have to cut myself off. We'll actually remember living in a world where federal law mattered, apparently that's --

(Overtalk.)

CHAIRMAN PRETLOW:Senator --

CHAIRWOMAN KRUEGER:Thank you.

CHAIRMAN PRETLOW:-- you do get an extra three minutes. Which I'm going to use right now, my three minutes, just for one quick question having to do -- it's a follow-up to Senator Krueger's questions.

And that's that if a taxpayer files their New York State income taxes late and is due a refund, the Tax Department does not give them that refund. Why is that? How long has this been going on? And is it fair?

DTF COMMISSIONER HILLER:If a taxpayer is entitled to a refund and --

CHAIRMAN PRETLOW:Right. If I file my 2020 taxes today and I'm due a refund, everything is proper on the form but the individual does not -- the Tax Department withholds the refund.

DTF COMMISSIONER HILLER:So we -- if you're due a refund, we'll pay you that refund unless you have outstanding debts to the state or federal government, in which case we will offset that refund to pay those other debts.

CHAIRMAN PRETLOW:Well, that's not the case, they just don't -- I'll contact you offline with --

DTF COMMISSIONER HILLER:I would be happy to address because we are in the business of delivering refunds. We deliver millions of refunds every year, most within 30 days or less. We pay interest if we don't pay refunds on time.

And if there's a particular taxpayer who's due a refund and hasn't received it, we would be happy to look at that.

CHAIRMAN PRETLOW:Thank you.

Senator?

CHAIRWOMAN KRUEGER:Yes, Senator Gounardes for a second round of three minutes.

SENATOR GOUNARDES:Thank you. I have just two questions and a quick comment.

Great to hear about all the progress on Direct File. I know we talked about that a little bit last year. It's very exciting to see that --

DTF COMMISSIONER HILLER:It's very exciting.

SENATOR GOUNARDES:-- that progress.

As it relates to the Governor's proposal for the inflation refund checks, right, it's been framed as sales tax is booming because inflation is up and we're going to give you back that money.

Have we seen an actual appreciable change in sales tax collections?

DTF COMMISSIONER HILLER:We actually have seen a change in sales tax collections. I believe that the Division of Budget calculated the nut for the inflation tax rebate at $3 billion because that was the growth in sales tax revenues over the assumed inflation rate that they had expected. And that that's what created that nut.

But that's not a recurring nut. That's -- you know, we've seen that. As we've seen changes in the economy, we're seeing changes in consumption. And so we don't have certainty that we're going to see that revenue in outyears, which I think is why the Governor is proposing to deliver that particular bucket of funds in a one-time relief as opposed to recurring relief.

SENATOR GOUNARDES:Got it. Thank you.

And then on the Secure Choice program, also excited to see this finally coming off the ground, a little bit delayed but -- you mentioned that there will be a start with a limited program this June, hopefully.

DTF COMMISSIONER HILLER:Yup.

SENATOR GOUNARDES:Last year the Governor signed -- I think it was last year; maybe two years ago now -- expanding that program eligibility to independent workers, workers who don't have an employer.

What's the plan for the rollout for freelancers, who are now eligible to invest in that program?

DTF COMMISSIONER HILLER:So the legislation that was enacted last year or the year before authorized the Secure Choice Board, which is comprised of Governor's and legislative appointees, to expand the program to freelancers under their authority when we get there.

We're rolling it out in the first instance to employers because that's where there's complexity around setting up portals for employers to transmit the funds that are being deducted from employee paychecks and the like. There's just some administrative complexity to how that will work.

And our program administrator will be building out the interfaces for the management of the funds and the like. Once that's in place, I expect the Secure Choice Board will expand it to freelancers.

It's a slightly different implementation because freelancers aren't paid on a regular schedule. They will be making -- they'll be coming in to make a deposit when they're able to make a deposit, and not having just an automatic payroll deduction flowing into their account. So it's going to be a slightly different implementation, which is why it's being phased to come after the initial rollout.

SENATOR GOUNARDES:So the rough timeline -- in the last eight seconds, rough timeline for the freelance piece?

DTF COMMISSIONER HILLER:So we expect to roll this out to employers in the fall; we're going to start with limited employees -- limited employers. And then hopefully the following year.

SENATOR GOUNARDES:Thank you.

CHAIRWOMAN KRUEGER:Thank you.

Assembly?

CHAIRMAN PRETLOW:We're done.

CHAIRWOMAN KRUEGER:Then I'm taking my next three minutes, thank you.

DTF COMMISSIONER HILLER:Okay.

CHAIRWOMAN KRUEGER:I just never run out of tax questions.

DTF COMMISSIONER HILLER:Always here.

CHAIRWOMAN KRUEGER:So I don't think this affects the state, but I wanted to ask your opinion.

So some of us are exploring how you deal with the property tax debt on people all over the state who are cash poor but real estate rich because the value of their house went up so much over the years -- and they often have now gone into actually fixed incomes and have lower cash than they ever had before -- and discussions of allowing towns to do liens that upon sale or transfer of deed, probably in some cases at the death of the older people living in the house, that's when the money comes to the towns.

So it would delay their receiving the property taxes they owe, but some people think it could actually stabilize people being able to stay in their homes.

Is there a state reason to be concerned about this?

DTF COMMISSIONER HILLER:I think that -- I think that that would be challenging. That might be feasible in some communities and could be really challenging in other communities.

New York has some of the highest property tax burdens in the country, but about two-thirds of the taxes that we pay are school taxes. And so if you're proposing to have school districts delay collection of a core source of revenue for them, that could have cascading impacts that I don't feel in a position to predict. I can foresee them, but I don't know what they would look like.

I think that -- you know, if instead we were saying that a county would make a school district whole for the missing taxes and then be the holder of those liens, we also have significant challenges in county finances that, again, are primarily supported by property taxes, although counties also have sales tax and other tax revenue that are helping to support their operations.

But I think we're coming into a time when we could see significant fiscal challenges for counties because they are our partners in delivering a wide range of social services that are primarily federally funded. And if we see reductions there, we may see additional financial challenges at the local level.

So I would be really cautious about that. I certainly can't imagine advancing something in that realm without having it be at local option.

CHAIRWOMAN KRUEGER:I would agree, local option.

DTF COMMISSIONER HILLER:But I think that that becomes complicated because especially -- in many parts of the state the relationship between school districts and counties is not always great. And I think the school districts are the places where this would hit most profoundly absent some real thoughtful and careful balancing of where those impacts are going to lie.

CHAIRWOMAN KRUEGER:Thank you.

Thank you.

CHAIRMAN PRETLOW:Thank you.

And this concludes this section of our hearing. Commissioner, I want to thank you for your participation.

DTF COMMISSIONER HILLER:Absolutely.

CHAIRMAN PRETLOW:And I'm calling up now Panel A: The Fiscal Policy Institute; Strong Economy for All Coalition; and New Yorkers for Fiscal Fairness.

Gentlemen, good morning.

CHAIRWOMAN KRUEGER:Good morning.

CHAIRMAN PRETLOW:Just for the sake of the people in the audiovisual booth, could you just state your names quickly so they'll know which names to put up on the screen? And then when we start your testimony, we'll start from my right, your left, and work that way.

MR. GUSDORF:I'm Nathan Gusdorf. I'm the executive director of the Fiscal Policy Institute.

You couldn't hear me? I'm Nathan Gusdorf, executive director of the Fiscal Policy Institute.

MR. KHAN:Charles Khan, the deputy director of the Strong Economy for All Coalition.

MR. DEUTSCH:Ron Deutsch, director, New Yorkers for Fiscal Fairness.

CHAIRMAN PRETLOW:Thank you.

You each have three minutes.

MR. GUSDORF:All right, I want to speak to a lot of items in the Executive Budget, so I'm going to move quickly through a list of items here.

First of all, in terms of the Executive Budget proposals, FPI is strongly of the view that there should not be an income tax cut at a time of substantial federal funding risks. It doesn't make sense to impose a permanent billion-dollar revenue loss. There's never going to be political will to raise the tax rates on those income brackets.

Most of that tax cut, as well, goes to upper income groups -- not the rich, but about 65 percent, by our calculation, goes to households making over $150,000. So we don't think that's really a rational use of the state's resources.

Second point, the corporate tax is set to expire, the current top rate is set to expire in 2026. That's another billion-dollar revenue loss, beginning within the outyears of this financial plan. That's $2 billion in combined revenue losses at a time when the Legislature has been tasked with coming up with about $2 billion for the MTA. That math doesn't make sense.

The inflation refund is also not a wise use of the state's resources. That's about the whole surplus for this fiscal year spread over 93 percent of taxpayers. The checks that people receive are not really on the scale of cost increases from recent inflation. And the money could be put to better uses like investing in affordable housing, paying down the Unemployment Insurance Trust debt, or just saving it because of the likely need to bridge funding gaps from federal cuts in the near term.

Second, in terms of MTA funding, to the extent that new sources of revenue are sought, we would point to two things: One, reducing the rebate of the pass-through entity tax. It doesn't need to be at a 100-percent rebate for that tax to work.

And second, targeting multinational profit shifting, in particular by following the federal taxation of global and tangible low-taxed income.

Moving on to the discussion of outmigration in my last minute, FPI has done consistent research over the past few years showing that this is largely a myth.

The top 1 percent of earners move at about one-fourth of the rate of all other households. Evidence shows that they don't really move in response to tax increases.

The last tax increase came up in the acting commissioner's testimony -- but that was during COVID, and the 2021 outmigration rate came down compared to 2022. I think it's hard to say that that was about taxes.

Finally, the other big concern around top earners and progressive tax increases is this fairness question, or the disproportionality question. So I'll just point out that we have about 1.5 percent of taxpayers who are millionaire taxpayers. They earn about a third of all of the income earned in the state, and they pay about 45 percent of all tax liability. That's basically proportional and reflects a modest degree of progressivity in the income tax, but it's not prohibitive of further progressivity.

MR. KHAN:So thank you. Good morning. I want to spend actually most of my time talking about some of the federal risks that Nathan alluded to. I think right now we've all maybe been watching the news too much if we've been seeing that a budget reconciliation package is quickly moving through Congress with the goal of being passed in the next 30 days.

And unfortunately New York has been named specifically in some of these documents, and in our current fiscal situation we are not well-prepared to respond to this bill.

And just to talk about the scale of how New Yorkers could be impacted in some of the things that they've been proposing, the biggest pieces are the cuts of at least $880 billion to Medicaid. Seven million New Yorkers rely on Medicaid. These are about 45 percent of children in New York receive healthcare because of Medicaid. Our grandmas and grandpas and elderly get healthcare through Medicaid.

And that's just -- it's an enormous, enormous number. The cuts that they've proposed could easily blow a 5 or $10 billion hole in the New York State budget.

In addition to healthcare cuts and Medicaid cuts, there's also 3 million New Yorkers that rely on SNAP for food assistance that are facing cuts. Thousands of New Yorkers that are on Head Start for childcare, they're facing cuts. A million New Yorkers that are receiving rental assistance because of this aid from the federal government.

All of this is on the chopping block. All of this is included in the budget reconciliation package and the menus that they have been putting forth.

And again, I will say that we're not well-prepared, and government takes some time to act, and I want to implore all of us that we need to act in some way this year in order to be prepared for those cuts.

By the time the cuts happen, it will be too late to stop millions of people from being harmed. Even if we raise the revenue next year, millions of people already will have seen benefit cuts. And because we're talking about healthcare, we're talking about life or death decisions that millions of New Yorkers will be facing.

It's not a wait-and-see scenario the way typical federal budgets have been. I'd also point to -- Elon Musk has been mentioned a couple of times. Some of these funding cuts are not coming through budgetary processes, they're coming through alternative processes that are happening overnight. And New York's typical reliance on the federal government for some of this funding is no longer a viable option to provide services that millions of New Yorkers are depending on to make ends meet.

There's a number of ways in which we could start to prepare for this, right? In the Taxes hearing, as Nathan said, as Ron will probably say, there's a lot of revenue options. We have record millionaires, record billionaires in New York State.

MR. DEUTSCH:All right. My name is Ron Deutsch, New Yorkers for Fiscal Fairness. Thank you all for the opportunity to be with you here today.

I want to highlight what we call our Share Our Wealth proposals that we are pushing for in terms of higher marginal tax rates on the superrich. I think one thing that brings us together and unites many across the political spectrum is this notion that the wealthy are not paying their fair share and that the superrich certainly are not paying their fair share in taxes and can do more to help us.

So a number of different proposals are being advanced right now. One is on the income tax rates, and we would increase marginal tax rates for those making over 5 million and those making over 25 million, the two top brackets, by half a percent each. That would generate nearly a billion dollars in revenue.

And also on the corporate tax we'd be looking to increase the rates from the current 7.25 for businesses with incomes over $5 million to 9 percent, which brings us in line with states like Pennsylvania, New Jersey, California, and other surrounding states. This would raise about $2 billion a year.

The corporate tax increase that was put in place in 2024 is set to expire in '26, and we need to make sure that that does not happen at a time when we are needing revenue.

We would also like to see these changes made permanent and to not have us continually come back and fight for these changes. Senator Gounardes has introduced a bill -- two bills, actually, S4437 and S3943, and Assemblymember Solages has introduced a same-as in the Assembly.

Supporting this legislation are a number of unions, faith groups and community groups, not the least of which is NYSUT, New York State AFL-CIO, 1199, AFSCME, CWA, NYSNA, UUP, PSC, DC37, FPWA, Human Services Council, the New York State Council of Churches, and many others.

These proposals may sound familiar to you because they are not new. As a matter of fact, they were taken from your one-house budgets last year. So there seems to be broad agreement among the majorities in both houses that this is indeed a good plan.

It only impacts the top quarter of 1 percent of taxpayers in New York -- 26,500 taxpayers. So the folks who would be impacted by this are not going to pick up stakes and move away, but the revenue generated would go a long way to keeping the folks who are struggling in New York here.

CHAIRMAN PRETLOW:To question, Assemblyman Ra.

ASSEMBLYMAN RA:Thank you.

For FPI, you mentioned about -- saying that the pass-through entities shouldn't be a 100 percent rebate. Do you have a number in mind?

MR. GUSDORF:Yes, thanks for the question. So I take it you're familiar with the tax and motivation for creating the tax.

A 90 percent rebate or an 85 percent rebate would basically match us to what Massachusetts and Connecticut do. And the revenue calculation, that is very easy because we know what PTET revenues are, so that gets you about a billion and a half dollars a year.

And one thing I'd add to that, if you don't mind, is even though it's likely that there will be a change in SALT deductibility under the federal rules, it's very unlikely that we'll go back to unlimited SALT deductibility. And even a $20,000 or $30,000 change at the federal level has no effect on the incentive of that top taxpayer class to elect to pay the PTET.

ASSEMBLYMAN RA:Thank you.

So generally I think, you know, we're going to agree to disagree on a lot of things when it comes to our tax policy, but I do always appreciate your testimony.

But in particular, you know, that corporate rate -- New York was a massive outlier nationwide in taking that action post-pandemic. There was really no other state -- every other state was cutting these tax rates, and New York raised it. You know, we're a year out from that expiration, and as you know -- and perhaps you disagree -- but, you know, our business community is struggling with the cost of operating businesses in this state.

We have many metrics that consistently rank us near the bottom. And regardless of what's coming at the federal level, I think our competitiveness as a state is something that we always have to keep in mind to bring in businesses. Because at the end of the day, that's how we grow our revenues and that's how we have the assets to invest in so many of the things that are in this budget that I'm very supportive of -- childcare, you know, all those types of things.

MR. GUSDORF:Yeah, thank you. I also enjoy our exchanges at these hearings.

A few important points about the corporate tax. The rate that we had in place prior to that increase was a historically low rate for New York State and actually a very low rate by state-to-state comparisons. We were at 6.5 percent; it had been decreased just a few years before. And there are actually many states that have a rate in the 8 to 10 percent range. So it's still not a super-high corporate tax rate by state comparisons.

Second, most businesses these days are not organized as corporations. The most recent analysis done on federal data, which was about 10 years ago, suggests that about 95 percent of businesses are pass-throughs.

So then you have a pretty small set of corporations --

ASSEMBLYMAN RA:I'm going to run out of time. But again, as you mentioned the tax cut, remember, lots of small businesses are filing under those provisions and --

CHAIRMAN PRETLOW:You have run out of time, Assemblyman.

Senator?

CHAIRWOMAN KRUEGER:Senator Gounardes.

SENATOR GOUNARDES:Thank you very much.

I have the same question for all three of you. You know, there's -- we always talk about revenue raising, increasing tax rates. Everyone has a back-and-forth and that's an important part of the conversation. But I think there's also a conversation to be had about finding the change within the cushions, right, and where are we leaking money, where are we otherwise spending money on tax breaks, exemptions, deductions, et cetera, that might not be the best investment.

So I'd like to ask all three of you: In your estimation, what is the most egregious tax giveaway in our current tax code that we should be looking at as a way to reclaim some revenue to help us fund a lot of the things that many of us up here care about?

MR. DEUTSCH:I mean -- I would start. I mean, I've read the report that you so ably put together. I think, you know, when you look at things like tax breaks for yachts, tax breaks for gold bullion, tax breaks for private jets, those are certainly things -- tax breaks for no sales tax on the purchase of thoroughbred horses -- all of these things are just absolutely ridiculous and I think should be taken away.

But the reality is that they're not going to generate probably enough revenue to make a huge difference as to what's coming down the pike right now, so I think that's part of the solution, to be examining all of those ridiculous tax breaks that we're providing, especially to the uber-wealthy, and reverse that trend.

MR. KHAN:I'd say something similar. I would definitely say economic development. I think the metrics that we use to track economic development are opaque and they are hard to quantify and different programs use them differently.

And so I do think that that program, there's quite a bit of waste there, but would also say I think it's part of the solution. And even that money, if we completely fix that program, wouldn't generate the type of resources we'll need to, you know, fix the Medicaid gap.

MR. GUSDORF:So, yeah, I would make a few additional specific comments.

First of all, I do think that the sort of statewide system of economic development authorities that are allowed to reduce property taxes and other sorts of local taxes is not an efficient form of tax policy from any perspective, including from a very fiscally conservative perspective.

It would be preferable to broaden the base and have lower rates for all businesses than to do selective tax breaks that end up being very costly.

The second thing, which is the sort of annoying truth of the tax-breaks calculation is most of the big ones are things that sound good to people, like the home mortgage interest deduction and the charitable deduction. The ones that sound really bad normally are a very small amount of money.

So there's a good strategy there, though, which is you reduce the value of the deduction for very-high-income taxpayers because they get most of the benefit of a lot of these deductions. And so if you took that approach, you could come up with some serious money.

SENATOR GOUNARDES:Thank you.

CHAIRMAN PRETLOW:Assemblymember Bailey.

ASSEMBLYWOMAN BAILEY:Good morning. Thank you very much.

My question is going to be for Nathan. And it's in and around the Governor's proposed inflation rebate checks. We know that, you know, 500 for couples who are married and filing jointly, with an income less than 300,000, and then 300 for individuals with an income of less than 150,000. So -- and that's based on the taxpayers 2023. And that's using some of the surplus -- or the revenue that we have.

So some critics, you know, argue that the one-time payments are gimmicky and instead it should be used for something else. Where -- where do you see that the best use for that could potentially be?

MR. GUSDORF:So I'll go through three things. The most quotidian one is this is not a bad time for the state to be saving money. I mean, we think that it's a reasonable use of reserves to bridge the federal funding gaps that we expect to see very soon.

So we're not opposed to spending down those reserves, but that's -- this is a good moment to be holding onto cash.

There are two other things that we think are really good policy options. One, the Executive Budget includes a proposal for a revolving lending facility to finance mixed-income housing. We think that's a good idea. But there's only $50 million proposed to go into the fund. If you put billions of dollars into that, it starts to make a more meaningful difference in housing production, which is necessary to lower the cost of housing.

The other thing that is a multi-billion-dollar issue is the state's Unemployment Insurance Trust Fund debt to the federal government. Now, this will be paid off by businesses over the next few years. Paying it off is necessary to improve the benefits payout, and the state also needs to raise the tax base for the Unemployment Insurance system because it simply doesn't put enough money into the program.

We're already seeing laid off federal workers, we're likely to see economic volatility under this presidential administration's economic policies. And so we think it is very important that the state get its UI system into proper functioning mode as quickly as possible.

That may mean that some of the benefit can flow to businesses, but it would have to be part of a deal that is paired with appropriate increases to the benefit level and to the overall tax rolls so that prospectively we don't continue to end up in the situation that the state has faced time and time again where it just is not able to adequately finance its Unemployment Insurance system.

ASSEMBLYWOMAN BAILEY:Okay. And I was just going off of the executive summary from your organization and, you know, it indicates the one, you know, putting it into the state's Unemployment Insurance debt from the federal government. And obviously that's coming out of COVID where we saw that large increase.

So, you know, we will see -- you know, I don't disagree with that from that standpoint. Thank you.

CHAIRWOMAN KRUEGER:Thank you.

Senator Rivera.

SENATOR RIVERA:Thank you, Madam Chair.

So we've talked for a while, gentlemen, about the cuts that are definitely coming from the federal government, so it is -- and most of the conversation we have today is about revenue-generating ideas. And I want to talk about one -- I wanted to give you an opportunity to talk about one related to capital gains.

And considering that since we have a lot of wealthy folks in the State of New York and a lot of wealthy folks who are probably going to get all sorts of tax breaks from the federal government, could you talk a little bit about capital gains, about population in the State of New York, what would that mean as it relates to revenue for the state?

Anybody can take it.

MR. GUSDORF:So we've done estimates on it. You know, a quick overview.

The first thing is a very substantial federal tax benefit for capital gains, right? The top federal income tax rate is 37 percent. That's actually -- you know, it used to be 39.6 percent until Trump cut it. The top capital gains rate is 20 percent, setting aside an Obamacare tax. But there's still a very substantial federal tax benefit for investment income.

So in equity terms --

SENATOR RIVERA:This is already. This already exists.

MR. GUSDORF:Yeah, this has been going on for a hundred years.

SENATOR RIVERA:Gotcha.

MR. GUSDORF:So there's a very strong fairness argument for higher taxes on investment income. Sometimes that scares people because they say, Well, working people have 401(k)s; you know, what about my stock portfolio? The unsurprising reality is about 80 percent of all capital gains in New York State -- this is New York tax data, this isn't like national data -- 80 percent of capital gains in New York State go to people making over a million dollars a year. Right? It's overwhelmingly earned by the very rich.

And interestingly, the rich taxpayers mostly earn their income from investment income and from business ownership. They earn a small amount of the wage income earned in New York. So that's the concentration of capital gains.

You could -- I believe there are proposals in the Legislature to do a full offset of the federal benefit. That's like a $15 billion a year revenue proposal.

But even at a low rate, because of the high amount of investment income earned, you can get into the $1 billion to $4 billion a year revenue estimate range based on, say, a 2 to 3 percent surtax on investment income for the top income brackets.

SENATOR RIVERA:Go ahead.

MR. KHAN:I would, I think, add that sort of the way that income and wealth has been accumulated in New York State is probably the best math to show that the gap between capital gains and income tax rate is just accumulating at the top.

Since 2017, where we saw cuts to sort of both of those cuts to a lot of different rates for wealthy individuals, we saw a 74 increase in the wealth of billionaires in New York State. Right? So they have 74 percent more money in 2025 than they did in 2017.

SENATOR RIVERA:And with only five seconds, I say let's go get it.

MR. KHAN:Yes.

SENATOR RIVERA:Let's go get it.

MR. KHAN:We have a record number of billionaires, and so that's where the resources are.

SENATOR RIVERA:Thank you.

CHAIRMAN PRETLOW:Assemblymember Manktelow.

ASSEMBLYMAN MANKTELOW:Thank you.

Nathan, back to a question for you. Let's go back to the unemployment insurance.

Back when COVID hit, a lot of our businesses were asked to close, lay their people off, put them on unemployment. A lot of that was mandated from our former governor. And now these businesses that were essential stayed open and they continued to provide wage-earning wages to their employees.

But the constant call I get back all the time is, why does New York State not pay for our unemployment debt back to the federal government? Why is my business being held responsible for that and not New York State, who put them in the position they're at?

Do you feel that New York State should cover that expense and not the businesses back home?

MR. GUSDORF:So what may be a mildly complicated answer is I think it's appropriate for --

ASSEMBLYMAN MANKTELOW:I don't mean to interrupt, it's not really that complicated. I've listened to all of you earlier, and you guys are smart individuals there. It's not complicated.

What's complicated is why New York State will not take care of that debt.

MR. GUSDORF:Well, it's a -- you know, businesses fund the unemployment insurance system through a tax on wages. So it's appropriate for businesses to pay that tax and for it to be a liability of employers, which economically, right, there's a significant incidence on the workers. So it's not like it's a tax on their business profits.

The issues that we see in the current system, which you might agree with, are that because of the very low taxable wage base and because of the experience rating, it's a system that kind of unfairly dings small businesses and employers in very volatile industries like if you work in construction and you just sort of hire people seasonally and then lay them off, that's the nature of the industry. Right? You can't change that.

So the -- I believe that the rationalized version of this tax, it's still a business tax, but it should be one with a higher taxable wage base that is just spread over, right, broadly over employers. That's the broad-based low rate concept that gets more money into the system and it sort of reduces some of the penalty to being one of these businesses that we think is not appropriately targeted by the current system.

So that's like the necessary tax reform.

Then there's the question of what to do with the debt. Again, in principle, I don't think it's wrong or unfair for that to be a burden of businesses. The issue is just that this is a very timely problem, right, it's a multi-billion-dollar issue. And it makes more sense to do a deal where you get the right benefit reforms and tax reforms and bring down the debt.

ASSEMBLYMAN MANKTELOW:Thank you. I hate to interrupt you, but I only have seven seconds.

I agree with that. But if our businesses are able to grow, they can put more employees on and we could crack that nut as well, in that direction.

MR. GUSDORF:Yeah.

ASSEMBLYMAN MANKTELOW:Thank you for answering my question.

CHAIRMAN PRETLOW:Senator?

CHAIRWOMAN KRUEGER:Senator Shelley Mayer.

SENATOR MAYER:Good morning.

I'm not sure who can answer this question.

Have any of you done -- based on the House bill that was just passed this week -- the likely dollar impact on New York's Medicaid program, based on the assumptions that are in that bill?

MR. KHAN:So the bill that passed this week, it put sort of a blueprint. And so it has some actually bottom-line figures on healthcare.

SENATOR MAYER:Yes.

MR. KHAN:It will probably be about another 30 days that we'll have the details where we'll be able to, with any type of real accuracy, determine like the dollar figure amount. But it's quite large.

SENATOR MAYER:Right. So then the second part is, other than the tax issue, which you've all talked about, it's very likely that it's a short-term -- it's a this-year problem in New York, this loss of Medicaid funds, particularly FMAP or whatever they choose to do.

Other than the tax issues, which I know you all want to talk about, none of you have talked about any application of the rainy day fund or any other place where money is situated in New York State as a possible solution. What are your views on that?

MR. GUSDORF:So our views at FPI are the state, by the Executive Budget accounting, has about $21 billion in reserve. There's additional money in the General Fund, so by our accounting it's really 34 billion. Right? And that's assuming that the current-year surplus is all spent, so you could potentially have even more.

I think the basic outline of the strategy should be prepare to spend down a significant amount of those reserves in order to bridge federal funding losses. And then there has to be a contingency plan on the spending side to do something permanently, that the reserves are basically a short-term solution.

That means looking at, I mean, potentially serious broad-based revenue raisers -- maybe something like doing a sales tax on services. Right? We don't -- our sales tax doesn't apply to services. You do a low rate, but that's the kind of policy that many other counties use to raise really substantial revenue. New York needs to consider those sorts of options if it comes to a dilemma of losing $15 billion in Medicaid funding versus trying to backfill it.

SENATOR MAYER:Any others? Yes.

MR. DEUTSCH:I would say yeah, I totally agree with what Nathan just said. Utilizing the economic stabilization funds and the rainy day funds, as well as the additional revenue that we are holding right now makes a lot of sense to weather this initial storm.

But in the long term, we're going to need to figure out how to generate the type of revenue we need to make sure we're providing the residents of this state the services that they so desperately need. And asking the wealthiest, who are very likely going to be doing very well under the new tax cut package that it looks like Congress is pulling together, it seems to make sense for us to ask our wealthiest residents to pay a little bit more, yeah.

SENATOR MAYER:Thank you.

CHAIRWOMAN KRUEGER:Assembly?

CHAIRMAN PRETLOW:I believe I have no further questions, just maybe a comment.

Is it being suggested by any of you that if -- and I know "if" is not the right word -- when the federal government cuts our Medicaid funding, that the state backfill what the feds are not doing?

MR. GUSDORF:Yes.

MR. KHAN:Yes.

MR. DEUTSCH:Yes.

CHAIRMAN PRETLOW:So if they cut us 10 billion, you would expect the state to raise taxes to make up for that 10 billion?

MR. DEUTSCH:It will be raining, so a good time to use rainy day funds, I suppose.

MR. GUSDORF:Yeah, in terms --

CHAIRMAN PRETLOW:But this is more than just rain, this is more of a flood. And Noah's Ark isn't big enough to get us out of it.

MR. GUSDORF:And so, you know, you can think about the sort of range of cuts in the -- we might see a few billion dollars of cuts. That's something that we all understand --

CHAIRMAN PRETLOW:I hate to say a billion dollars is small potatoes.

MR. DEUTSCH:Yeah, exactly.

CHAIRMAN PRETLOW:But when you're talking about forty -- the Medicaid is around 47 percent of the state's budget of $257 billion. So we're looking at over $100 billion of Medicaid monies. If the feds cut half of that, you're looking at a $70 billion hole.

PIT is not going to take care of it, the rainy day fund's not going to take care of it. Nothing is going to take care of it. The only way that we can maybe -- maybe -- make this work is if the feds cut their income taxes, the state's going to have to raise its income taxes -- which I know you're all opposed to doing -- and then we're going to be in the same boat.

So we're in a world of trouble right now, and people aren't really recognizing what the issue is. You know, in Alaska it is said that they put their elderly out on the ice. That's what's going to happen here. Because the bulk of our Medicaid funding goes for long-term care, which is our senior citizens. And if we don't have the funding available -- and we're not going to be able to tax our way out of this. If we don't have the funding available to take care of our most vulnerable, unfortunately they're going to perish. And I hate to sound like this, but that's what I think is going to happen.

MR. GUSDORF:If I could add. I do have an answer to that.

If we're -- we're looking at $90 billion of federal funding in this upcoming year's budget, 70 billion of which is Medicaid.

It's unlikely that we would lose $70 billion in Medicaid funding. If we end up in $10 to $15 billion revenue loss situation from federal funding -- I mean, it's a shift in tax policy, but that is doable, given the size of the state economy.

But you're not going to get $15 billion by only taxing people who make over $5 million a year. That's why we've pointed to broad-based business taxation, including pass-throughs, sales taxes on services, and broad-based income tax increases. Which no one's going to be a fan of. But that is a realistic, stable path to finding another $15 billion a year where it is viable to backfill it. You know, two to three times that is -- who knows. But that's still in range.

CHAIRMAN PRETLOW:But, see, but your numbers are off because -- I have to cut myself off.

CHAIRWOMAN KRUEGER:I'll continue it, if that's okay, because I have three minutes.

So I was going to go down that same road, because I think it's overly optimistic that they would only cut us $15 billion at the rate they're going and the rapidity by which they all folded on $2 trillion cuts at the federal level the other night.

So I'm just curious, because you're all tax experts. You don't have to answer it now, but you have to help me. The governor of Maine said: If Donald Trump stops federal funding to Maine, we, the people of Maine, will take our federal taxes from all paychecks and no taxes will be paid to the federal government, so we can pay for things ourselves.

Will any of you explore whether we can put that into law and do that?

MR. GUSDORF:Well, so I am a tax attorney. I have not studied the issue. My guess is that you're not allowed to do that.

CHAIRWOMAN KRUEGER:And yet they don't seem to recognize law. So I'm not sure I do either.

MR. GUSDORF:I mean, it --

CHAIRWOMAN KRUEGER:So I'm just saying --

MR. GUSDORF:In the event of a civil war, it's a good idea.

CHAIRWOMAN KRUEGER:-- I'm sharing my colleague's position, we're not going to be able to produce this money ourselves unless we are substituting money that now goes to Washington and will no longer come back with our needs.

So, you know, I'm only half joking -- it was a governor who said this -- to see if we can pull this off.

MR. DEUTSCH:I think there is a very large imbalance between what we send to the federal government versus what we get back.

CHAIRWOMAN KRUEGER:Yes.

MR. DEUTSCH:And certainly the Comptroller does reports on that all the time, so we know what those numbers are.

But I think, you know, we need to rethink how we do business here in New York as we move forward in this new world that we find ourselves in -- a new funding world, a new political world. But, you know, New York is spending $10 billion a year on poor economic development programs, both at the state and local level. That should be pared back dramatically, if not -- you know, we should be looking at using that money to fund other services like childcare, like higher education. Things that have a greater return on investment for the public than funding, say, an Amazon warehouse, which makes absolutely no sense whatsoever.

So we need to rethink how we're spending the money that we are spending right now, cutting out the waste. And I'm not talking about a DOGE Commission here by any stretch of the imagination. But we know where we're spending money in places that we shouldn't. We've brought that up to you many times.

MR. GUSDORF:I would just add, you know, the $2 trillion of cuts is over the 10-year CBO forecasting window, so it's $200 billion a year spread over 50 states. So it's real money for New York, but it's probably not $30 billion for New York.

So I actually think the right window to look at is the, like -- you know, a few billion to, maybe if they went really far, the ten to $15 billion range.

And I would just point out that the state economy is robust enough to raise that through new revenue measures.

CHAIRWOMAN KRUEGER:Thank you.

Thank you. The Senate is done.

CHAIRMAN PRETLOW:Thank you. The Assembly is done.

Gentlemen, thank you for your participation.

PANEL MEMBERS:Thank you.

CHAIRMAN PRETLOW:We're now calling up Panel B. Panel B: National Coin and Bullion Association; the National Federation of Independent Businesses; Schuyler Center for Analysis and Advocacy; and the New York State Council of Churches.

(Pause; discussion off the record.)

CHAIRMAN PRETLOW:Welcome. Please state your names so the people in the audiovisual room know whose name to put up when you speak.

And if you'd just introduce yourselves starting from my right, your left, so we just know who you are.

MR. COOK:Hi, I'm Peter Cook and I am the executive director of the New York State Council of Churches.

MS. SIDDIQUI:Good morning. I'm Kari Siddiqui. I'm a project director at the Schuyler Center for Analysis and Advocacy.

MS. RANSLOW:Ashley Ranslow. I'm the New York State director for the National Federation of Independent Business.

CHAIRMAN PRETLOW:Welcome all.

You can start on either side.

MS. RANSLOW:I can go ahead. Thank you. All right.

Well, good morning, everybody. Thank you for having me. Thank you, Senator Krueger, Assemblymember Pretlow, and members of the Senate and Assembly and legislative staff for having us here today.

NFIB is a member-driven organization representing more than 11,000 members in New York State. NFIB members are the businesses that define our neighborhoods and strengthen our communities with character and value -- local hardware stores, independent restaurants, florists, barbers, retailers, dry cleaners, convenience stores, farmers, roofers, landscapers. This is just a sample of NFIB members, and the typical small business owner is a member of NFIB. The average size of our members is 10 employees or less.

There are close to 500,000 small businesses in the State of New York. They employ 40 percent of the state's private-sector workforce, over 3 million New Yorkers. And their production accounts for nearly half of the state's GDP. A staggering 98 percent of businesses in New York have 100 employees or less.

Small businesses are also the backbones of their communities. Ninety percent of small business owners have financially supported community or civic groups; 63 percent have provided in-kind contributions; and 76 percent have reported volunteering for their local community organizations.

I'm going to focus today's testimony on a topic that got quite a bit of attention during the last panel, and that is unemployment insurance. The state does have currently a $6.3 billion debt to the federal government as a result of COVID. The state needed to borrow money because of the unprecedented amounts of business closures we saw during COVID that were mandated by state public policy decisions.

Those closures obviously led to a drastic amount of layoffs in a short period of time. The unemployment system was quickly overwhelmed. The state needed to borrow money to pay out unemployment insurance benefits. We still have 6.3 billion that we owe back to the federal government.

The Governor's Executive Budget proposal has allocated $165 million to pay the interest assessment surcharge, which NFIB strongly supports. This surcharge is assessed once a year on employers to just pay the interest on the state's debt. That notice goes out in the summer. Last year it was about $15 per employee.

We support the Governor's initiative to pay this -- for the state to pay this, because small businesses have been shouldering the burden of paying back the UI debt by themselves without any assistance.

This is contrary to what 36 other states have done. They used COVID relief funds to address their UI debt, to pay it off, to get it back to solvency, and to restore UI tax levels.

Small businesses are also paying $105 in increased federal UI taxes, they're paying $250 per employee in state UI taxes. This is a big problem, and New York State does need to address it sooner than later.

Thank you for your time today, and I'm happy to answer questions.

CHAIRMAN PRETLOW:Thank you.

MS. SIDDIQUI:All right, good morning. And thank you for the opportunity to testify today.

My name is Kari Siddiqui. I am a project director with the Schuyler Center for Analysis and Advocacy, where I focus on our child poverty reduction work.

The Schuyler Center is a 152-year-old statewide nonprofit organization based here in Albany and dedicated to policy analysis and advocacy in support of public systems that meet the needs of children and families, particularly those living in poverty.

I'm going to take a turn from what we just talked about and talk about how the tax code can better support New York's kids and families. And this year we have a tremendous opportunity to make a real substantial change to our child tax credit so that it can better help and support children and families and make New York State an affordable home for our families.

Backing up just a tiny bit, in 2021 the Legislature passed, you all passed and Governor Hochul signed into law the Child Poverty Reduction Act, which commits the state to reduce child poverty by 50 percent by 2031. It also established the Child Poverty Reduction Advisory Council, which just this past December released a set of really strong recommendations that would help New York State achieve that goal.

And key among their recommendations was an expansion to the Empire State Child Credit, which is our child tax credit here in New York.

In January the Governor included an expansion of the tax credit in her Executive Budget, a proposal that, if passed, would be the largest expansion of the credit since its establishment, and one that is a great first step towards a stronger, more impactful child tax credit.

The Governor's proposal is broad-based. It reaches both our lowest-income and middle-class families and extends the credit to lower-income families who actually, due to their low income level, were previously excluded from receiving the full credit amount.

But while the Governor's proposal is a great starting place, we can and must do more to make our tax credit work better for families and have a stronger poverty-fighting potential. The child tax credit expansion recommended by the Child Poverty Reduction Advisory Council would provide a larger amount, $1500 per child per year for all children zero to 18, while still eliminating that income requirement that has excluded the lowest-income families from the full credit amount.

It's also critical to index the credit to inflation so that families can continue to benefit from the full value of the credit for years to come. The expansion that is recommended by the Child Poverty Reduction Advisory Council is estimated to reduce child poverty by 23 percent compared to an estimated 8 percent reduction from the Governor's proposal.

I will point out that the Working Families Tax Credit, sponsored by Senator Gounardes and by Assemblymember Hevesi, would encompass all of the changes in the CPRAC recommendation and go even further to put money into families' pockets, including by paying the credit out throughout the year.

I'll end as I began, which is to say that we have a real opportunity this year to start to make New York State an affordable place and the best place to raise a family. Research on this topic has shown us again and again that tax credits work.

Thank you.

CHAIRMAN PRETLOW:Thank you.

Ed? Assemblyman Ra?

(Discussion off the record.)

CHAIRMAN PRETLOW:Oh, oh, I'm sorry.

MR. COOK:No worries. No worries.

CHAIRMAN PRETLOW:I'm looking at the clock here. Okay.

MR. COOK:Yeah, my name's Peter Cook. I serve as executive director of the New York State Council of Churches, founded in 1893. We represent 7500 congregations and nine denominations all over the State of New York.

Since the early 20th century, our council, shaped by the Social Gospel, has fought hard for a strong social safety net because we recognize the charity offered by church-based institutions could only go so far and that government programs were essential for permanently lifting people out of poverty and restoring our economy.

Unfortunately, the Trump administration, embracing the widely discredited supply side economics, seeks to severely cut that social safety net to give enormous tax cuts for the very wealthiest based on the mistaken assumption that it will help our economy.

To raise revenue, invest in our social safety net and put more money in the pockets of low-wealth and middle-class New Yorkers, we offer three proposals.

One, as members of the Share Our Wealth Campaign, we call for an increase in New York's top income tax rates for those earning over 5 million and over 25 million by 0.5 percent, and increase the top corporate tax rate by 1.75 percent. And we seek to make these changes permanent.

Second, we strongly urge you to pass a bill that no longer rebates the stock transfer tax. The state began rebating the tax in 1979, and since 1981 the tax is 100 percent rebated back to Wall Street. No longer rebating what is essentially a minuscule sales tax could result in 10 to 14 billion in additional revenue.

And finally, in order to relieve pressure on the most crushing property taxes in the country and invest in our social safety net, we ask that industrial area councils, IDAs, no longer be given tax breaks without the express approval from affected school boards. This we think will help reduce pressure on property taxes and also spawn more economic growth that comes through the expansion of the social safety net.

Thank you.

CHAIRWOMAN KRUEGER:Thank you.

CHAIRMAN PRETLOW:Assemblyman Ra?

ASSEMBLYMAN RA:Thank you.

Ashley, so you ran out of time a little bit. But if you could further detail regarding, you know, what the kind of all-in cost is to our businesses given now, you know, the Federal Unemployment Tax Act offset credit reduction will double.

So we're not just looking at the impact of them paying very high rates, there's a number of things that impact them the longer we keep this debt on our books and on the backs of our small businesses.

MS. RANSLOW:Yes, you're correct.

So New York is approaching the five-year mark of having outstanding debt. There is a provision in federal law, when you have five years of outstanding debt, what they call the FUTA offset is adjusted. They call this the benefit-cost ratio or the benefits-cost rate.

So what's going to happen is right now we're at 1.2 percent in a FUTA offset, so that equals about an extra $105 per employee for federal UI taxes. So that's going to double next year if the state still has its debt. So we're going to go from 1.2 percent to 2.3 percent. So businesses are going to be looking at a sizable jump in their federal UI taxes.

They do this as a way to pay the debt off faster, right? But I think it's really important to note that these federal UI tax offsets are in addition to businesses being in the highest possible state UI tax brackets, which average about an extra $250 per employee per year. So you're talking hundreds of extra dollars per employee per year.

So small businesses have poured out thousands of additional dollars to fix New York State's UI problem -- which again, to remind everybody, was a result of state public policy decisions. Right? The state shut down businesses.

And unlike 30-plus other states, New York just said, Oh, well, businesses, you're on the hook to pay it back. Other states used COVID relief funds to address their UI problems; New York hasn't.

And this is, again -- to the points that were made earlier as well, you cannot adjust the weekly benefit UI rate with the state's outstanding debt.

So the longer we let this go on, you can't do anything for workers either. You cannot -- the federal government will not allow you to increase UI weekly benefit rates as long as New York has this unemployment insurance problem. It's in the best interests of the state to address this problem now and to not let it continue.

ASSEMBLYMAN RA:And real quick, the manual workers issue -- obviously we had a provision that didn't make it over the finish line last year. Is it just large businesses or are there a lot of small businesses that are getting these lawsuits and dealing with them?

MS. RANSLOW:It's also small businesses.

You're right, there's a provision in the Governor's budget to address lawsuits over manual workers and the frequency at which they're being paid. It is not unique to big business; it is impacting small businesses who are facing multi-million- dollar lawsuits. And it should be addressed in this year's budget.

ASSEMBLYMAN RA:Thank you.

CHAIRWOMAN KRUEGER:Thank you.

Senator Gounardes.

SENATOR GOUNARDES:Thank you very much.

My question is for Kari.

You talked about the Governor's proposal on the child tax credit, and you pointed to the Working Families Tax Credit proposal as well. I'll just note, under the Governor's proposal, by my math, 86 percent of kids would only see a $170 boost, or their families would see a boost of $170, which if they're lucky might pay for a cable bill for half a month.

So I think you rightfully pointed out that we can do a lot better. But my question is, with the discussion at the federal level right now around the extension of the TCJA, and the expiration of the enhanced federal child tax credit and then the dropping back down of the value of the credit -- or the potential drop-down -- do you have any analysis as to what that impact might be on child poverty?

And New York almost leads the country for child poverty. If that child -- if the federal credit drops to a thousand, again, what's going to be the impact on New York's children?

MS. SIDDIQUI:Yeah, that's a really great question.

We don't have specific analysis yet on that. But we can get it. And I also think that we have some really strong things to look to, as you may know, as you know for sure, when the federal government expanded the child tax credit during COVID where families were getting monthly payments into their banks automatically every month, we saw child poverty, here in New York State and nationally, cut in half. Like by half. Half the amount of kids were living in poverty during that time.

And when that was allowed to expire and not renewed, we saw those child poverty rates rebound and actually go beyond where they were before.

So we can only extrapolate from that right now to say that, you know, that losing federal tax credit benefits would have a real impact on families' lives and on our child poverty rate here in New York State.

SENATOR GOUNARDES:Thank you.

CHAIRWOMAN KRUEGER:Assembly.

CHAIRMAN PRETLOW:Assemblyman Manktelow.

ASSEMBLYMAN MANKTELOW:Thank you.

Actually, a question back to small businesses. I know we've talked about unemployment and what that is doing to our small businesses. So if we can take care of that problem in this year's budget, what's the next best thing we can do to support these small businesses back home -- help them grow, help them put more employees on, and in turn that helps the state as well. What would be the next thing we could look at?

MS. RANSLOW:So unemployment insurance is obviously a key issue, as you reference. I think there are other things laid out in our testimony.

A couple of years ago New York did increase the small businesses deduction from 5 to 15 percent. It didn't do anything on the C corp side for small businesses, and there are some small businesses organized as C corps, so I think that that's something that the state should look at, tax parity-wise. Right?

I think also for small manufacturers we did cut tax rates from large C corp manufacturers many, many, many years ago. We did not do the same for small manufacturers, who are typically organized as pass-throughs: LLCs, S corps, that kind of thing.

So again, just looking at that tax parity, right, we sort of have cut taxes here a little bit, cut taxes there a little bit, to help certain businesses in certain areas. But I think we should take a step back and look at that and make sure that there is some real tax parity going on and that, you know, just how you're organized and your tax code doesn't necessarily dictate where you land, right, as a small business owner.

So I think we need to take a look at that.

I also think that in this conversation of revenue raisers we have to be really, really careful about what that could mean for small business owners. Right?

Just -- I always say like you've got to use a scalpel instead of a sledgehammer. Right? The answer isn't just to increase taxes on corporations, increase taxes on this area or that area. You really have to look at how businesses are organized and also, you know, who you're trying to target. Right?

Because small business owners -- I heard in the last panel, right, like, Well, our economy can handle it, right, tax increases. But I challenge anyone to walk into a small business owner and ask them how they're doing and how their business is going and how they're feeling. And they're going to tell you that they can't afford a tax increase.

So I'd just caution that.

ASSEMBLYMAN MANKTELOW:Yeah, you're absolutely right. Talking to the small businesses, every little tax, every little extra piece that they have to do takes away from their business, takes away from their employees having the ability or the chance to make more money. And if they can make more money, that adds money to the state side as well.

And I honestly believe if we can help that happen, we can grow those businesses and grow New York.

So thank you. Thank you all for your testimony.

Thank you, Chairwoman.

CHAIRWOMAN KRUEGER:Thank you.

Senator Tom O'Mara.

SENATOR O'MARA:Thanks.

Good morning, everyone. Thanks for being here.

Ashley, just to follow-up on the manufacturers tax and trying to get that parity with the C corps and the pass-through entities. We've talked about it in years past.

I've talked about it with Commissioner Hiller in years past; didn't get a chance to get to it today. But in years past she had raised an issue of maybe a difficulty in defining manufacturing to tell who would qualify for that as a pass-through entity.

If you could comment on that and whether there's been any -- whether your group has had any discussions with the Tax Department on how to possibly handle that type of a definition.

But also there was discussion earlier about changing the tax reporting time for pass-through entities and how the proposal in the budget and how that would be helpful or not to these pass-through entities.

MS. RANSLOW:So in terms of -- there has been some discussion with the Tax Department about how do you define manufacturing and how do you do that for pass-through entities.

There's not an answer yet on how to do that. I think that there are people that are smarter than I am, quite frankly, that are trying to figure that out in terms of tax policy. So I think it's ongoing, right, how can we find a reasonable solution to accomplish what we're trying to accomplish here. So I would say stay tuned on that front.

In terms of reporting for pass-through entities, I'd have to get back to you on that one.

SENATOR O'MARA:Okay. On the UI debt that's outstanding, I think the commissioner of Labor said that the amounts are even higher than the $6.3 billion you're referencing today.

But we know that about 36 other states used their federal COVID relief to pay this down, and New York did not, they chose to carry it. Of those states that weren't in that 36 that used the COVID relief, do you know where they stand? As compared to paying that down, are they dragging it out like New York State is, or are they making a more concerted effort to eliminate that debt?

MS. RANSLOW:Some states didn't have to borrow money. Some states' UI trust funds were actually so robust that they were able to get through COVID without having to borrow money.

Some states paid -- used some to pay off their debt, right, some COVID relief money, then some money from, you know, increased business taxes to pay off their debt.

And then there's only one other state in addition to New York that has outstanding debt. It's us and California. We're the only two left that have UI debt to repay. everyone else is -- has paid off advances or didn't borrow it to begin with.

SENATOR O'MARA:And in your testimony you say that it's going to get more difficult for small businesses to deal with as that repayment amount increases year to year, correct?

MS. RANSLOW:Correct. And also you risk an economic downturn, right, in -- if there are just natural economic downturns and layoffs and the state has to look at borrowing more money, which just puts us further in the hole.

SENATOR O'MARA:Thank you.

CHAIRWOMAN KRUEGER:Any members?

So we have Senator Jackson.

SENATOR JACKSON:So I was going to say good afternoon. It's almost good afternoon. Thank you for staying the course and making sure that who you represent are being heard here today.

Did I hear correctly that all three organizations' representatives agree that we should look at getting resources by taxing the wealthiest New Yorkers -- not the small business people, not the churches and not the analysis organization that you work for, but where the resources are, and taxing the wealthiest New Yorkers?

Did I hear you correctly that you support that, and looking at the issues and concerns that impact the State of New York as far as, you know, dealing with the unemployment insurance hole that we are in, and also looking at the needs of our children and families that exist?

Am I correct in that all three of you are in favor of taxing the wealthiest New Yorkers just a little bit in order to help their brothers and sisters of New York State?

MR. COOK:Yes, absolutely. And we really think that taxing the wealthiest a little bit more is actually going to be more economically productive in terms of improving the social safety net, which helps to mitigate high costs which cause people to leave the state and also affect our businesses at all levels.

MS. SIDDIQUI:Yeah, I would just echo what Peter said.

SENATOR JACKSON:I'm sorry, I could not hear you.

MS. SIDDIQUI:I'd just echo what Peter said.

SENATOR JACKSON:Okay. And Director Ranslow?

MS. RANSLOW:In terms of the UI debt, yes, we obviously support paying that down.

And in terms of tax policy, I think that, you know, to my comments earlier, when we talk about revenue raisers, you have to be very discerning about where you're getting the revenue from and if it's going to have an impact on small business owners.

SENATOR JACKSON:And that's why I indicated as far as -- I thought I heard you say that the issues and concerns of small businesses have to be taken into consideration. Everyone says small businesses are the backbone of our society.

And so I'm not talking about the small businesses, though, I'm talking about the wealthiest New Yorkers.

MS. RANSLOW:I hear you. I think it gets difficult when you talk about personal income taxes. There are a lot of small businesses who pay their taxes via personal income taxes. They themselves may not be a multi-millionaire, right, but they pay their taxes via personal income taxes. So you have to be very careful about that.

SENATOR JACKSON:Thank you.

Thank you, all three, for coming in.

CHAIRWOMAN KRUEGER:Senator Pam Helming.

SENATOR HELMING:Thank you, Senator Krueger.

This question is for Ashley. Thank you all for being here.

It's always dangerous when you come in at the very end and throw out a question. But Ashley, I hear from small businesses across my district all the time about the challenges of doing business in New York State, whether it's the costly mandates that are pushed down on them, including the all-electric mandates; uncertainty surrounding a number of regulations that are constantly in flux; and of course high taxes.

And now, in the budget, there are programs that will incentivize new businesses, the CATALIST NY program. In my district, because I'm so close to Micron, my companies want to know where is their Micron bonus, right?

So I'm just wondering, from your perspective, do you see any challenges for our small businesses, existing businesses, when new businesses receive so many incentives?

MS. RANSLOW:This is an issue that is near and dear to NFIB's heart.

I testified a couple of months ago before many of you on economic development programs. Most of -- if you look at most of New York's economic development programs, they are very specific to often larger businesses. They are geared towards certain industries, right. And I often categorize it that New York has gotten into the business of picking winners and losers. Right? Who we want to give money to and who we don't want to give money to.

If you're an existing small business, third generation, fourth generation, you've been around for hundreds of years, paid taxes, done everything -- you qualify for practically nothing from New York State. Right? Maybe a loan program, if you want to.

So from an economic development perspective, if you're an existing small business and you have been for a long time, no, you're probably not getting anything in terms of economic development.

SENATOR HELMING:Thank you.

CHAIRWOMAN KRUEGER:I think the Senate is done, just looking quickly.

So I pass it back to the Assembly and thank you very much for your participation today.

CHAIRMAN PRETLOW:The Assembly's also done, and I want to thank the three of you for your participation.

And this formally ends this hearing on Taxes. Thank you very much.

PANEL MEMBERS:Thank you. (Whereupon, the budget hearing concluded at 11:57 a.m.)