State lawmakers are pushing to repeal tax breaks for luxury items like yachts and private jets, as well as limit deductions taken by businesses, arguing that New York needs to stop sacrificing revenues as it faces multibillion-dollar federal cuts.
The package of eight bills introduced this week includes a measure that would reduce businesses’ ability to deduct losses they suffered in one year from their profits in a prior or future year — a common practice that reduces a business’s tax burden. Other proposals take aim at specific perks in New York’s tax code, including sales tax exemptions for racehorses, yachts, private jets, gold bars and other precious metals; and an itemized deduction for gambling losses.
“Right now, our tax code here in New York is a mess of carveouts and loopholes and tax benefits that really only help the wealthy and the well-connected, depriving us of crucial state funding for programs that help everybody else,” said state Sen. Andrew Gounardes of Brooklyn, who is championing the package.
Business interests have long lobbied to keep these kinds of tax breaks in place, arguing that they spur economic activity, and there are few signs that the bills will pass in the month that remains in this year’s legislative session. But Gounardes and his allies say the looming spending cuts from congressional Republicans make the proposals more urgent.
“The state is about to lose billions of dollars, maybe up to $10 billion, in federal money,” said Nathan Gusdorf, executive director of the Fiscal Policy Institute think tank, at a Wednesday press conference on the legislation. “It is simply untenable to continue giving away billions of dollars each year.”
The breaks for private jets and yachts both date to 2015, when then-Gov. Andrew Cuomo slipped them into the state budget with support from Republicans who mostly controlled the Legislature. The state was projected to forgo as much as $6 million last year by exempting sales taxes on purchases of private jets and related items such as furniture or radios; the tax break on yachts, which kicks in after the first $230,000 of the sale price, cost taxpayers $1 million.
Created in 1989, the sales-tax exemption on precious metals and coins — including gold bars and ingots — applies on purchases over $1,000, and cost New York a whopping $601 million last year, according to official state projections. A tax exemption on training and maintaining racehorses, in place since 1988, cost $6 million. And the permitted deduction for gambling losses, like the other breaks, tends to benefit the wealthy, Gounardes argued, since well-off New Yorkers disproportionately itemize their taxes.
Potentially more controversial among mainstream businesses is Gounardes’ bill targeting so-called net operating loss carrybacks and carryforwards on corporate franchise taxes. The bill would shorten the time window that businesses can use to reduce their tax burdens — reducing how far businesses can deduct current losses into the future from 20 years down to five, and shrinking the losses that can be applied to past years’ profits from three years to one.
The changes would bring New York in line with other states — only four other states permit carrybacks, while about a dozen allow carryforwards shorter than 20 years, according to the think tank the Tax Foundation.
Tax breaks are the rare issue that tends to unite liberal and conservative experts, who view the perks skeptically unless they are backed up by evidence that they spur growth. Besides the left-leaning Fiscal Policy Institute, E.J. McMahon of the conservative Empire Center was among the critics of the yacht tax break when it was enacted in 2015, and the hawkish Citizens Budget Commission has often argued against extending unstudied exemptions.
Patrick Orecki, the CBC’s director of state studies, told Crain’s that while the commission has no position on the new bills, “it’s important for the state to reevaluate its many tax expenditures, which often continue year after year without adequate scrutiny.” Orecki pointed to last year’s state-commissioned report on tax breaks which found that some marquee programs, including the tax credit for film productions, fail to produce a return on investment.
Other supporters of the new bills include Manhattan state Sen. Brad Hoylman-Sigal and Assemblyman Tony Simone, and Long Island Assemblywoman Michaelle Solages, who also chairs the influential Black, Puerto Rican, Hispanic and Asian Legislative Caucus.
Assembly Speaker Carl Heastie has historically defended the yacht tax break, although state Senate leader Andrea Stewart-Cousins appears more skeptical — having included a repeal of the yacht and jet perks in the upper chamber’s official budget proposal last year.
Supporters have argued that repealing the perks would simply prompt well-off people to purchase boats and planes in other states, such as Florida.
Major legislative proposals often take multiple years to build momentum in Albany, meaning the repeal package could return if it fails to pass before lawmakers head back to their districts next month. And circumstances could change later this year: Gov. Kathy Hochul and legislative leaders have said they might call a special session if they need to slash spending in response to federal cuts.
