You might think that the middle of a recession spawned by massive corporate malfeasance wouldn’t be the best time to propose a giant tax break for corporations. But then, if you’re Mayor Mike Bloomberg and Council Speaker Christine Quinn, you might not. Crain’s reports today that the dynamic duo of City Hall has begun a major push to cut taxes for city corporations by $2.7 billion over the next decade, a gift that could eventually be worth more than half a billion dollars a year to city businesses.
What’s at stake here is something called the “single-sales factor,” a tax provision that went into effect at the state level this year. Under city law (and the old state law), corporations with interstate operations pay New York taxes based on a formula factoring in their local payroll, local sales, and how property they own here; the new rule would base it on sales alone. “Switching to a Single Sales Factor,” said Quinn in a statement, “will encourage more companies to create jobs here and lead to greater diversification of our economy.”
Simplified taxes, more jobs — sounds great, right? Except that, as “Big-Box Swindle” author Stacy Mitchell has noted, single-sales factor is actually a loophole that large corporations have been increasingly agitating for to save them bucketloads of dough. Since states can only tax companies with a physical presence in the state, switching to a sales-only tax means, writes Mitchell, that “for companies that have factories or offices in only a handful of states, but sales everywhere, the result of this change is that a large share of their profit becomes ‘nowhere’ income — income that isn’t taxed by any state.”
Okay, but even so, what about those jobs that will be saved by keeping corporations from closing up shop in New York City and relocating to a more loophole-friendly state? “That’s a perspective,” says James Parrott of the Fiscal Policy Institute. “Does anybody except the beneficiaries believe that? I don’t think so.”
A study by the Center for Budget and Policy Priorities found that adopting a single-sales factor approach was “a relatively ineffectual incentive for job creation and investment” — when Massachusetts switched to single-sales for manufacturers in the ’90s, for example, manufacturing jobs plummeted. Parrott further notes that for companies like Microsoft or Yahoo! with lots of sales here but only a small local office, the Bloomberg-Quinn proposal might even encourage them to leave the city, since that would now allow them to duck city business taxes entirely.
Like most of the rest of the mayor’s tax plan — which, full disclosure, would also include eliminating the unincorporate business tax, a potential boon to self-employed folks like, um, freelance newspaper reporters — the single-sales provision would have to go through the state legislature, which has a propensity for both 1) going along with whatever the city wants, so long as it doesn’t cost the state nothin’, and 2) complete dysfunction when it comes to doing much of anything, for good or ill. A key player could end up being Sen. Liz Krueger, the Upper East Side corporate subsidy critic who chairs the Select Committee on Budget and Tax Reform. We look forward to Bloomy’s testimony on how to love the rich people.